Earnings Preview: Abercrombie & Fitch

NEW YORK - Teen apparel retailer Abercrombie & Fitch Co. reports earnings for the fiscal third quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Preppy retailer Abercrombie & Fitch Co. has seen sales slump and lost market share to lower-priced competitors such as Aeropostale Inc., as it has stuck to its strategy of higher prices and investing internationally even amid the recession. But recently it has started discounting more, and international sales are strong. Some analysts are saying its long-term strategy might pay off.

Goldman Sachs analyst Michelle Tan and Credit Suisse analyst Paul Lejuez this week both upgraded the company to the equivalent of a "Buy" rating, saying strong international sales and lower prices domestically could help results.

Sales in stores open at least one year, a key measurement of a retailer's financial health, have slowly improved, though they are still negative. They fell 29 percent in August, 18 percent in September and 15 percent in October.

International expansion remains a major focus of Abercrombie. It recently opened a flagship in Milan and plans to open one in Tokyo by year end. It also plans to open 10 mall-based international stores this year.

In addition to its namesake stores, Abercrombie operates abercrombie children's stores, surf-themed Hollister stores and Gilly Hicks, its intimate apparel brand.

BY THE NUMBERS: Analysts polled by Thomson Reuters, on average, expect earnings of 20 cents per share on revenue of $764.5 million. That's a 72 percent decline from earnings of 72 cents per share a year ago and a 15 percent decline from revenue of $896.3 million last year.

ANALYST TAKE: Stifel Nicolaus analyst Richard Jaffe wrote in a note to investors that weak consumer spending and weak women's apparel offerings continue to weigh down Abercrombie results.

He added the holiday assortment, which hit stores in October, showed signs of improvement but said he is "still waiting to see a greater percentage of fashion-forward merchandise (fewer basics) and a larger number of novel styles, which we believe is needed in this environment to inspire the customer to buy."

SunTrust Robinson Humphrey analyst Robin Murchison said international expansion is a "major opportunity," for the company.

Overall, however, "business remains difficult as management adjusts execution to the current reality," she said in a client note. "Lower opening price points, assortment adjustments and fleet evaluation remain ongoing defensive initiatives."

WHATS AHEAD: Analysts will be seeking information about how holiday merchandise is selling and what promotions are planned for the next two months.

STOCK PERFORMANCE: Shares rose nearly 15 percent during the quarter beginning Aug. 2.

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