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Abercrombie & Fitch is the latest retailer to signal better clothing demand. But investors are wary.

Clothing retailer Abercrombie & Fitch Co. reported better-than-expected third-quarter earnings on Tuesday and raised its full-year outlook, after a strong back-to-school season for its Hollister brand and an “encouraging start” to the holiday season.

Still, shares were down 3.5% in afternoon trade.

The results follow a long run higher for…

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