Abercrombie Investor Day Adds Some Zip to Stock

Abercrombie & Fitch (NYSE:ANF) at its investor day earlier this month raised its revenue and profit forecasts considerably, which helped lift shares. Our price estimate for Abercrombie & Fitch stock is $60.44, which is around 15% below the current market price. We estimate that Abercrombie & Fitch stores contribute around 29% to the company’s stock price with Hollister stores contributing another 25%. Abercrombie & Fitch competes with other specialty retailers like Aeropostale (NYSE:ARO), Gap (NYSE:GPS) and Urban Outfitters (NASDAQ:URBN).

Abercrombie & Fitch Expects Strong Growth in Coming Years

The company expects to have annual sales of $7.5 billion by 2016, over two times its net sales for fiscal 2010. The retailer is aggressively expanding abroad in Europe and Asia, hoping to benefit from the strong growth in the demand for specialty apparel being witnessed in these regions. In particular, emerging markets in Asia are becoming the focal point of leading specialty apparel retailers across the world that hope to leverage the growing demand for high end fashion resulting from favorable demographics and increasing disposable income of people in these regions.

The company plans to open 40 Hollister stores and and 10 Abercrombie & Fitch stores abroad this year, with similar growth rates to be maintained in the coming years. Its international comparable store sales so far have also been encouraging. ^[1]

Upside to Revenue per Square Foot

The revenue per square foot for both Abercrombie & Fitch stores and Hollister stores fell considerably during the recent economic downturn. The company is an upmarket retailers with significantly higher price points than most of its peers, and is bound to suffer in the event of a sharp drop in consumer spending as witnessed during the recent economic downturn. However, with the economic environment improving in 2010, the revenue per square foot of both Abercrombie & Fitch stores and Hollister stores picked up.

Going forward, we expect them to increase from current levels to $520 and $450 respectively, by the end of our forecast period. However, with the outlook for consumer spending in the US looking strong and the company benefiting from international expansion, if the revenue per square foot for both Abercrombie & Fitch stores and Hollister stores increase at a faster rate and are 20% higher from our current forecasts at the end of our forecast period, it would result in an upside of around 10% to our current price estimate for Abercrombie & Fitch’s stock.

See the full analysis for Abercrombie & Fitch

1. Abercrombie shares soar on strong sales goal [↩]