ANF Abercrombie and Fitch Co

It has become increasingly imminent that strong and popular brands have the potential to drive growth in the global market and American Eagle Outfitters Inc. (AEO) is no exception.

Based on its strong brand power, the youth clothing and accompaniments retailer recently announced the opening of three new stores in Morocco, Jordan and Egypt, respectively.

The company also announced the opening of its third store in Saudi Arabia. Moreover, the company stated that it plans to open an additional store in Lebanon by early 2012, thus taking the total store count to two in the country.  

International turf provides generous long-term opportunities for retailers to enhance their margins. The opening of new stores in the international market allows retailers to further expand and add newer markets for their products.

American Eagle commenced its international journey in May 2009 when it entered into a partnership with Alshaya. The company along with its partner offers its renowned brand to the residents of Egypt, Lebanon, Morocco, Jordan, Kuwait, UAE, and Saudi Arabia.

Moreover, owing to its strong fan following, the company started international shipping of its assortments to its patrons through its e-commerce site in 2004. Currently, the company’s e-commerce site spans across 77 countries, with Italy being the latest to join the bandwagon.

American Eagle together with its subsidiaries engages in the design and marketing of casual clothing. 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.

We remain impressed with the company’s continued momentum in denim along with improved merchandise assortments in the women’s business segment, which will likely lead to a turnaround in its top line as well as a rebound in gross margin.

The company operates in a highly fragmented specialty retail sector and faces intense competition from other teenage-focused retailers, such as Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS).

We currently have a short-term Zacks #2 Rank (Buy) and a long-term Neutral recommendation on the stock.

 
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