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Abercrombie & Fitch Falls on Gross Margin, Inventory

Abercrombie & Fitch Co. Shares Fall on Gross Margin
A shopper holds onto an Abercrombie & Fitch Co. bag in New York. Photographer: Jin Lee/Bloomberg

Abercrombie & Fitch Co., a teen clothing retailer, fell the most in two months as profit margins eroded on increased markdowns.

Abercrombie fell $2.58, or 6.9 percent, to $35.05 at 4:01 p.m. in New York Stock Exchange composite trading. Earlier, the shares dipped as low as $33.97, or 9.7 percent.

The retailer, owner of the Abercrombie & Fitch and Hollister Co. chains, today reported second-quarter profit of 24 cents a share on an adjusted basis. Analysts surveyed by Bloomberg had estimated profit of 16 cents on average. Sales in the three months ended July 31 climbed 17 percent to $745.8 million, the company said in a statement.

Gross margin, or profit as a percentage of sales, narrowed on a 15 percent drop in average price of an item from more discounts. Some carryover merchandise will likely need “to be marked down significantly” to be cleared in the third quarter, pressuring margins, Richard Jaffe, an analyst at Stifel, Nicolaus & Co., wrote today in a note.

The New Albany, Ohio-based retailer’s inventory jumped 47 percent to $480 million at the end of the second quarter, more than needed for new stores, Cowen & Co. said today in a note to clients.

“Although the international business is performing well, we remain concerned about the long-term future of the domestic operations and the inventory build” in the second quarter, Cowen analyst Laura Champine wrote today in the note.

Abercrombie plans to close about 60 U.S. stores this fiscal year and reduced the number of international mall-based Hollister stores it plans to open to about 20 from 25.

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