This Retailer is Flying Off the Rack

Retail sales in the United States for October declined for the first time in four months. Even though superstorm Sandy influenced shopping, the decline was a surprise to analysts. However, one retailer is outperforming to the upside Tuesday, as earnings came in better than expected.

The Commerce Department reported a 0.3 percent drop in retail sales last month, compared to a revised 1.3 percent increase in September. The median forecast of 83 economists surveyed by Bloomberg expected a decline of 0.2 percent. October represented the first decline in retail sales since June, and the worst miss of expectations since May 2010. Eight out of 13 categories in the report showed a decline, with auto dealers and building material stores leading the way.

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Information was collected in the Sandy affected area, but the Commerce Department was unable to quantify its impact. “Even though we cannot isolate the effect, we did receive indications from the companies that the hurricane had both positive and negative effects on the retail sales data,” the agency explained in a statement.

Although the slowdown in October weighed on many retailers, some names in the industry reported strong numbers. Same-store sales at Macy’s (NYSE:M), the second-biggest domestic department-store chain, increased 4.1 percent, beating estimates. Kohl’s (NYSE:KSS) same-store sales gained 3.3 percent, easily beating expectations for a 0.8 percent increase.

Before the opening bell, Abercrombie & Fitch (NYSE:ANF) reported financial results the third quarter and was a clear standout in the retail industry. The company announced that earnings surged 40 percent to $71.5 million (87 cents per share), compared to $50.9 million (57 cents per share) a year earlier. Sales for the thirteen weeks ended October 27, 2012 jumped 9 percent to $1.17 billion, compared to $1.08 billion in the same period last year. Wall Street was expecting earnings of about 59 cents per share on revenue of $1.11 billion.

Mike Jeffries, chief executive officer, explains, “These significantly improved financial results reflect progress on several fronts over the past quarter. Our U.S. chain store business posted healthy growth on top of a strong quarter a year ago, and we saw sequential trend improvement in our international business. Our principal focus remains to execute against our key strategic initiatives to leverage our iconic brands and to continue to be judicious in our use of our shareholders’ capital to drive long-term shareholder value.”

The results sent short-sellers running for the register. Shares of Abercrombie & Fitch surged more than 34 percent  on Wednesday to reach their highest level since May. However, shares are still in the red for the year. As the chart above shows, Abercrombie & Fitch shares have underperformed other retailers and are down about 14 percent year-to-date. Aeropostale (NYSE:ARO), American Eagle Outfitters (NYSE:AEO), Macy’s and Kohl’s have all outperformed the company. J.C. Penney (NYSE:JCP) is one of the few retailers to underperform Abercrombie & Fitch, falling 50 percent during a large turnaround effort.

Abercrombie & Fitch also raised its guidance. The company now expects full year earnings per share to fall between $2.85 and $3.00, compared to a prior estimate of $2.50 to $2.75. On average, analysts were expecting earnings of $2.48 per share, according to Reuters.

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