Abercrombie & Fitch: A Must Have Stock - Barron's

Hugely successful clothing retailer Abercrombie & Fitch (ANF) has consistently managed to keep the pulse of youthful fashion, making Abercrombie's clothes 'must-have' for generation Y— even at a premium price. With cool store layouts and sexy, successful marketing, Abercrombie has achieved 67% margins. Despite aggressive pricing, customers just can't get enough. Fiscal 2007 earnings rose an impressive 13% to $5.20/share, despite the difficult retail environment. Even though Abercrombie predicts slower (5%-8%) sales in FH1'08, Barron's sees $6.90/share in earnings. Upside possibilities include phenomenal international sales, but which still only account for 3% of ANF's $3.75 billion sales annually; Abercrombie's Hollister chain offers greater profit potential with its lower-priced goods and younger target crowd; The Gilly Hicks lingerie line is already competing with giants like Limited Brands' (LTD) Victoria's Secret; and a personal care/perfume line rounds out the offerings.

Although ANF's creative genius CEO Michael Jeffries encourages the heavily sexual marketing campaigns, they've created backlashes. Jeffries' capricious nature and insider selling also makes Wall St. nervous. Store openings are slowing slightly and some brands like Ruehl haven't quite caught on yet. But generation Y seems to be enamored, and some analysts expect $100 shares.

Comments

[RichShinnick]

It is funny how teen retailers have been "annointed" recently. Why is it that teens can perpetually afford ANF but their Mothers supposedly can't afford Coach anymore and are moving from Target to Wal Mart.

[CrossProfit]

Rich,

It is a lot harder to tell a teen to cut back when he/she has to look hip due to peer pressure, than the moms. Moms were once teens as well!

Yes, moms will shop at COST and WMT before telling their teens they can't shop at ANF. This may not be true for all, yet there are enough to sustain ANF through the retail downturn.

As an aside, retail has a tendency to bounce back as there is an inherent need to shop in American society. Americans will cut back to a limit before getting a second job. We haven't reached that point (yet?).

CrossProfit

[EZ]

Rich,

I thought the same, but I concluded that many teens (at least when I was in HS 10+ years ago) have PT jobs throughout the year. Unlike their parents, they do not need to pay for food, rent/mortgage, health insurance, etc. Their only real expenses are entertainment (maybe some gas if they're lucky enough to have a car).

Assuming a teen works 20 hours per week for $8/hr (not sure what the going rate is for a sales/cashier clerk at a typical mall store), that's about $640 gross per month. I think that would be enough to maintain/add to their wardrobe throughout the year--and hit up a movie over the weekend.