Business

Abercrombie & Fitch looking buff again to Wall Street

Abercrombie & Fitch is back in style on Wall Street.

Shares of the teen clothing retailer rose 3.8 percent yesterday to $47.20 on optimism that profits will improve this year despite a dull start this spring.

Abercrombie said in its annual report late Tuesday that it’s still aiming to grow earnings per share by 15 percent annually — despite recent hiccups that have hit the New Albany, Ohio, company’s bottom line.

While skeptics point to Abercrombie’s spotty track record in recent quarters, bulls say improved inventory management is poised to boost profitability this year — betting that the company’s financial guidance has been conservative.

Especially promising is a new strategy to “chase” fashion trends by speeding deliveries to stores, using more US vendors and flying shipments in from abroad, said Morgan Stanley analyst Kimberly Greenberger.

“This should help [A&F] take less inventory risk and better match inventory levels with demand,” Greenberger said in a note to clients yesterday, adding that bloated inventories weighed on earnings last year.

At the same time, however, Greenberger admitted that the new strategy has risks of its own, making the retailer more vulnerable to increased supply-chain costs and operational errors by clothing suppliers.

“Manufacturers can’t always deliver and this is part of what happened in the current quarter, leaving [Abercrombie] too low on in-season goods,” Greenberger said.

While aggressive inventory reductions will put a ceiling on first-quarter sales, it sets the stage for improved profits in the second quarter, according to the analyst, who had a meeting last month with top Abercrombie execs, including CEO Mike Jeffries.

Abercrombie shares are off 1.6 percent this year and are down 4.9 percent in the past year.