Abercrombie Remains Neutral - Analyst Blog
June 09 2011 - 7:30AM
Zacks
We have maintained our long-term
'Neutral' recommendation on Abercrombie & Fitch
Company (ANF) with a target price of $73.00 per share.
Moreover, the company has a Zacks #3 Rank, implying a short-term
'Hold' rating on the stock.
Headquartered in Albany, Ohio,
Abercrombie operates as a specialty retailer of premium, high
quality casual apparels for men, women, and kids through a network
of 1,069 stores across the U.S., Canada and Europe.The company has
a strong portfolio of well-established brands, each of which is
focused on the unique characteristics and rapidly changing
preferences of its target customers.
Moreover, Abercrombie is focused
toward increasing its presence in international markets in order to
drive top-line growth. During fiscal 2011, the company plans to
open new stores in Paris, Madrid, Dusseldorf, Brussels, Dublin and
Singapore under its Abercrombie & Fitch flagship stores. Apart
from this, the company has planned to open 40 international
mall-based Hollister stores. Consequently, this provides a strong
upside potential to the company.
Furthermore, in an effort to
improve cash flow and enhance management’s focus toward core
brands, the company has terminated its entire chain of
underperforming RUEHL branded stores and associated
direct-to-consumer operations. This is expected to increase its
long-term profitability. Currently, the company has a solid balance
sheet with cash and cash equivalents of $741.8 million and
long-term debt of only $69.9 million at the end of the first
quarter of fiscal 2011. This offers Abercrombie financial
flexibility to drive future growth.
However, Abercrombie does not own
or operate any manufacturing facility and therefore purchases all
its merchandise requirements from independent third parties. The
company's operations may be adversely affected if these
manufacturers are not able to ship orders in a timely manner or
meet the company’s quality standards.
In addition, Abercrombie's business
is seasonal in nature and generates a high proportion of sales
during the third and fourth quarters, which are characterized by
the back-to-school and holiday seasons. Furthermore, the company
ramps up its merchandise levels in anticipation of the holiday
season, exposing the company to significant risks, if the season
fails to deliver expected operating performance.
Above all, Abercrombie operates in
a highly fragmented market and competes with national as well as
regional players. Furthermore, apart from competing with larger
retailers such as Gap Inc. (GPS), Abercrombie is
facing increasing competition from value-priced specialty retailers
such as Aeropostale Inc. (ARO) and Buckle
Inc. (BKE).
ABERCROMBIE (ANF): Free Stock Analysis Report
AEROPOSTALE INC (ARO): Free Stock Analysis Report
BUCKLE INC (BKE): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
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