Abercrombie Evenly Poised - Analyst Blog
September 08 2011 - 12:21PM
Zacks
We maintain our long-term Neutral recommendation on
Abercrombie & Fitch Co. (ANF). Abercrombie is
one of the leading specialty retailers of premium casual apparels
in the U.S. 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, in an effort to improve cash flow and enhance
management 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.
Furthermore, Abercrombie is focused on increasing its presence
in international markets as a means to drive top-line growth.
During fiscal 2011, the company plans to open stores in Paris,
Madrid, Dusseldorf, Brussels, Dublin and Singapore under its
Abercrombie & Fitch flagship chain.
The company plans to open 40 international mall-based Hollister
stores. Overseas expansion provides a strong upside potential to
the company.
On the flip side, Abercrombie’s business is seasonal in nature
and generates a high proportion of sales during the fiscal 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
itself to significant risks, should the season fail to deliver.
Additionally, Abercrombie does not own or operate any
manufacturing facility and therefore purchases all its merchandise
requirements from outside. The company’s operation may be adversely
affected if these manufacturers are not able to ship orders on time
or meet its standards.
Also, Abercrombie operates in a highly fragmented market and
competes with national as well as regional players. Besides
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 holds a Zacks #3 Rank, which translates into a
short-term Hold recommendation.
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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