Strong Growth Outlook for Abercrombie & Fitch

May.25.07 | About: Abercrombie & (ANF)

Analysts are seeing solid near-term fundamentals, and a still-reasonable sector valuation that has been dampened by a less favorable long-term secular outlook.

Despite this, Abercrombie & Fitch's (NYSE:ANF) growth outlook is very strong and visible. It is supported by Hollister, which is expected to double its revenues to $3 billion in the U.S., and International, which has been off to a robust start with the March opening of its flagship store in London.

ANF's business model is one of the best in specialty retail. The bottom line here is that this is one of the strongest and sustainable businesses in an industry that is known for being volatile.

Here are the facts:

  • 55+ consecutive quarters of EPS growth
  • 5+ years of high teens Return on Capital
  • 5+ years of 25%+ Return on Equity
  • 5+ years of 15%+ Return on Assets
  • 5+ years of high teens operating margins
  • The biggest push back on the stock is that the brands are weakening or weaker than its peers. Analysts believe this to be untrue, but work suggests the brands are as strong, if not stronger, than the peers, and top line (e.g. SSS growth) is being held back to near-term from difficult denim compares, which should ease over time.

    ANF 1-yr chart
    ANF 1-yr chart