Shares of Abercrombie & Fitch (NYSE:ANF) were flying higher today after the teen clothier turned in solid comparable sales growth in its fourth-quarter earnings report and gave an upbeat outlook for 2019. As a result, the stock was up 21.4% as of 11:20 a.m. EST.
Abercrombie said comparable sales increased 3% in the key holiday quarter, following a 9% pop in the year before, but net sales were down 3% to $1.16 billion as the company lost a week in the calendar. That still beat estimates at $1.13 billion. Hollister comps remained strong, increasing 6%, while Abercrombie's comparable sales fell 2%.
Gross margin increased 70 basis points to 59.1%. However, its stores and distribution expense rose 100 basis points to 37.6% due to higher online sales and increased digital marketing. Higher expenses in that category led to adjusted earnings per share falling slightly from $1.38 a year ago to $1.35, which easily topped expectations at $1.15.
CEO Fran Horowitz said: "We ended 2018 on a strong note, recording our sixth consecutive quarter and second consecutive full year of positive comparable sales while exceeding $1 billion in annual digital sales. Most importantly, while delivering on the top-line, we drove gross profit rate improvement and operating expense leverage resulting in 100 basis points of adjusted EBIT margin expansion and a 77% improvement in adjusted net income for the full year."
Looking ahead, investors were encouraged by the company's outlook as it forecasted comparable sales growth in the low single digits and 2% to 4% overall revenue growth. It did not give specific earnings-per-share guidance, but its other forecasts seemed to signal slight growth in the bottom line. The company also said it would close 40 stores while adding 85 new "store experiences," which include new stores and remodels.
While A&F's report today wasn't outstanding, the bar for mall-based retailers has fallen so low that it sets up opportunities for retail stocks that are able to demonstrate steady growth.
Editor's note: This article has been corrected to note that Hollister comps increased 6% in the period.