Abercrombie & Fitch Picks Up a Little Momentum
Abercrombie & Fitch (NYSE:ANF) recently reported first quarter results, in which net sales increased 22% over the same period last year, to $837 million. Internet sales increased 32% vs. Q1 2010. Total comparable store sales grew 10%. Breaking this number down further, comparable store sales for Abercrombie & Fitch stores increasing 8%, while those for Hollister stores grew 11%. Operating margin for the company increased by 7% year-over-year. [1]
Abercrombie & Fitch competes with other specialty retailers like Aeropostale (NYSE:ARO), Gap (NYSE:GPS) and Urban Outfitters (NASDAQ:URBN). Our price estimate for Abercrombie & Fitch stock sits at $64.13, implying a discount to market price. Notably, Abercrombie & Fitch stores make up about 29% of our stock price estimate, while Hollister stores contribute another 26%.
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Abercrombie & Fitch’s earnings results were noteworthy in light of increasing cotton costs, which have put a dent in the profitability of apparel retailers. However, it remains to be seen how customers will react to possible increases in merchandise prices over the next few quarters, as retailers raise prices prices to offset heightened input costs.
During the recent economic downturn, which saw a steep drop in consumer spending, revenue per square foot for Abercrombie & Fitch stores declined considerably. Beyond a broad decline in demand, the Abercrombie & Fitch also struggled as customers shifted to lower-priced alternatives. The company is typically hesitant to resort to discounting, for fear of deteriorating its premium brand image.
However, with consumer spending picking up in 2010, revenue per square foot rebounded sharply. Going forward, we expect a further increase to around $487 in 2011, from $450 in 2010. Beyond 2011, we anticipate a steady increase towards $550 by the end of our forecast period.
However, if trends in sales results from the first quarter continue into the next few quarters, there could be upside to our Abercrombie & Fitch stock price estimate. Drag the trend line in the interactive chart above to see how various upside scenarios could affect Abercrombie & Fitch’s stock value.
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