Abercrombie posts surprise profit, sees better holiday-quarter sales

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(Reuters) -Abercrombie & Fitch Co on Tuesday posted a surprise third-quarter profit and forecast a smaller-than-expected drop in current-quarter sales as it remains "cautiously optimistic" for the holiday season.

The Ohio-based retailer's shares were up about 14% in premarket trading after the company also reported better-than-expected third-quarter sales even as inflation dampened discretionary consumer spending.

The company's attempt to revamp its inventory to get rid of casual and athleisure apparel that have fallen out of fashion and bring in new styles have helped its Abercrombie label post a 10% jump in third-quarter sales.

Abercrombie and Gap Inc (NYSE:GPS)'s Banana Republic have performed well as wealthier shoppers opt for dressier clothing over casuals for post-pandemic outings even as soaring prices encourage consumers on lower incomes to rein in spending.

Last week, U.S. retail chain Macy's Inc (NYSE:M) signaled strong demand for high-end apparel and accessories ahead of the holiday season as well-to-do customers continue to splurge.

Abercrombie expects fourth-quarter net sales to fall about 2% to 4% in fiscal 2022, compared with analysts' average estimate of a 6.3% drop, according to Refinitiv IBES data.

American Eagle Outfitters (NYSE:AEO), on the other hand, expects bigger-than-expected fall in fourth-quarter sales, but sees gross margin in the range of 32% to 33%, at the higher end of its previous forecast as the company benefits from attempts to right size inventory.

Excluding items, Abercrombie reported a profit of 1 cent per share in the third quarter, compared with estimates of a loss of 16 cents.

The company's net sales fell 2.8% to $880.1 million, but beat estimates of $831.1 million.