Shares of Abercrombie & Fitch (NYSE:ANF) hit a two year low when they closed at $39.50 on Wednesday. The shares dropped thirteen percent despite beating earnings per share estimates for the first quarter. Shares traded for $75 back in November but have fallen several times since that time.
Revenue for the first quarter was $921.2 million, which fell short of analysts' predicted total of $951.1 million. Cost of goods sold and inventory both rose for the quarter, which could be a huge negative going forward. Earnings per share for the quarter were $0.04, which was a large decline from last year's $0.28. Analysts were expecting earnings per share of $0.02 for the quarter. Abercrombie's top line miss on sales seemed to be more important to investors than the earnings miss.
Same store sales were a big negative for the company. By store, the same store sales were:
- Abercrombie & Fitch: -4%
- Abercrombie kids: -11%
- Hollister: -5%
- Company-wide: -5%
International sales continue to make up a large part of Abercrombie & Fitch's sales. For the first quarter, international sales rose 42% from increased store counts. International sales made up 30.1% of Abercrombie's total sales for the quarter. Back in 2011, the international sales base was only 25.2%. The international store count rose to 84 at the end of the first quarter broken down as:
- Canada - 12
- United Kingdom - 27
- Germany - 13
- Italy - 6
- Spain - 9
- Ireland - 1
- Hong Kong - 1
- Sweden - 2
- France - 5
- Belgium - 2
- Austria - 3
- China 3
In the first quarter, the company opened new stores in Germany, China, United Kingdom, France, Italy, and Spain. Scheduled for the rest of 2012 are new stores in Germany, Hong Kong, Ireland, and the United Kingdom. New stores are also scheduled for Netherlands (Amsterdam-Fall 2012), and South Korea (Seoul-Spring 2013) that represent new countries for Abercrombie & Fitch.
At the end of the first quarter, Abercrombie & Fitch had 1049 total stores open.
- Abercrombie & Fitch - 294 stores, 279 in United States, added 2, closed 2
- Abercrombie kids - 159 stores, 154 in United States, no change
- Hollister - 575 stores, 491 in United States, added 7, closed 3
- Gilly Hicks - 21 stores, 18 in United States, no change
Abercrombie & Fitch has listed over 180 stores that might be closed by 2015. Despite the closings, the company is also adding stores including 30 to 40 Hollister stores each year. The company will also open 3 to 5 flagship stores internationally each year.
Abercrombie has guided for 2012 earnings per share of $3.50-$3.75. The company also guided for a same store sales loss in the mid single digits. Back in April during an investor presentation, Abercrombie called for $4.75 earnings per share in 2012. The revised forecast is based on closings and European weakness. Abercrombie should have no problem meeting or passing the revised guidance. Analysts on Yahoo Finance are predicting 2012 earnings of $3.55, which falls towards the lower end of Abercrombie's guidance. With a share price of $39.50, the price to earnings ratio is 11.2 at the lower range and 10.5 on the higher end. Analysts are even more bullish on 2013's earnings, with a predicted $4.51. That makes shares trade at a forward price to earnings ratio of 8.7, showing great value for investors willing to wait for next year's earnings to come back next year.
The company pays out $0.70 a share in dividends, which represents a yield of 1.8%. A $0.175 quarterly dividend has been paid since 2005, when it was raised from a then $0.15. Look for the company to increase the dividend rate soon as it attempts to attract investors back into the company. The company has also authorized 12.5 million shares to be repurchased. In 2011, Abercrombie repurchased 3.5 million shares at an average price of $55.44. In the first quarter of 2012, Abercrombie has already bought back 3.3 million shares at an average price of $48.85. The company added ten million shares to the existing share repurchase program recently.
Over the last fifty two weeks, shares of Abercrombie & Fitch have traded between $40.25 and $78.25. While that high number likely won't be seen for a long time, shares do look attractive at this level. Back in November, I recommended buying shares of Abercrombie when they traded at $44.65. Shares have fallen even further and I have to once again strongly recommend buying shares. The international exposure is not enough of a reason to get bearish on the company. Abercrombie has clear plans of closing underperforming stores and opening new stores in international markets around the European weakness. Direct to consumer sales is also another reason to buy shares, as the company is completely reshaping its internet presence and has seen growing e-commerce sales. I think shares will see $55 by the end of 2012, representing a 39% increase in thecurrent share price.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ANF over the next 72 hours.