Tags: Abercrombie | Fitch | Europe | ANF

Abercrombie & Fitch Prepared for Long Haul in Europe

Thursday, 05 Jul 2012 02:15 PM

By Greg Brown

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Abercrombie & Fitch (ANF) is moving ahead in Europe with new stores and a new brand format, despite the rough waters in the economies there. Management says it is prepared for the long haul in that market, while analysts believe that the moves into Europe have been well-timed.

Abercrombie & Fitch is a specialty retailer that operates stores and direct-to-consumer operations. Through these channels, the company sells a broad array of products, including: casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, and Hollister brands.

ANF also operates stores and direct-to-consumer operations offering bras, underwear, personal care products, sleepwear and at-home products for girls under the Gilly Hicks brand. As of Jan. 28, ANF operated 946 stores in the United States and 99 stores outside of the country.

“We spent a lot of time analyzing and understanding the trends in (the international) stores and making sure we have incorporated the appropriate takeaways in our longer-term strategy. We are committed to remaining disciplined in our approach to this strategy and opening stores that meet our margin criteria based on conservative volume assumptions,” ANF Chairman and CEO Michael S. Jeffries said in a recent conference call with analysts.

“We believe that the macro environment in Europe has been a significant factor in the recent trends we have seen. Cannibalization has also been a factor. However, it is important to note that given the extraordinarily strong start we made in Europe and putting aside the current cyclical and macroeconomic factors at play, we have long been prepared for a period of negative same-store sales.”

Abercrombie & Fitch has a market cap of $2.86 billion in a sector, specialty retail, where the average company size is $5.86 billion. Its trailing 12-month P/E ratio is 29.60 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.55, compared to 1.28 for the sector.

Its projected earnings per share growth for the coming year is 23.32 percent, compared to a sector average of 15.65 percent.

Mixed calls


Analysts are mixed on ANF, with buy or outperform calls from UBS, Citigroup Investment Research, Piper Jaffray, Friedman, Billings, Ramsey & Co., Needham & Company, and Jefferies.

EVA Dimensions, Market Edge, Columbine Capital Services, and Ativo Research rate the stock at sell or underperform.

“Despite weakening sales trends, we think ANF's European growth prospects remain attractive. We see a combination of high-quality products and engaging store shopping experiences giving both the A&F and Hollister brands strong global appeal,” S&P analysts wrote in early June.

“We also see promise in Gilly Hicks and look for the recent opening of stores in the U.K. and Germany to determine if this young woman's intimate brand has international appeal. In addition, we are encouraged by ANF's plans to narrow the U.S. pricing differential between its A&F and Hollister stores, as we think lower retail prices at A&F could improve the brand's competitiveness.”

Abercrombie & Fitch next reports on Aug. 15.

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