Abercrombie Stays at Neutral - Analyst Blog
January 31 2012 - 10:57AM
Zacks
We are maintaining our long-term Neutral recommendation on
Abercrombie & Fitch Company (ANF) with a
target price of $48.00. Moreover, the company has a Zacks #3 Rank,
implying a short-term Hold rating on the stock.
Abercrombie, one of the leading specialty retailers of premium
casual apparels in the U.S., has a strong portfolio of
well-established brands. Each of these brands is focused on the
unique characteristics and rapidly changing preferences of its
target customers.
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.
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. Apart from this, the company intends to
open 40 international mall-based Hollister stores, providing a
strong upside potential to the company.
However, 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.
In addition, 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, if the season fails to deliver encouraging
results.
Above all, Abercrombie operates in a highly fragmented market
and competes with national as well as regional players.
Furthermore, apart from 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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