jepittman

Abercrombie's 2009 Strategy Yields Favorable Results

So does virtually everyone. You are solidly within the consensus, and you could be correct. However outsized returns are obtained by recognizing where the consensus could be mistaken and positioning accordingly. The author is suggesting this stock could be such a situation. Time will tell.


On Feb 17 02:04 PM Joe Friday wrote:

> I think that one should be careful in giving Abercrombie too much
> credit.
> Their strategy of holding pricing has resulted in significant same
> store sales declines last quarter (25%).
> Even more ominous is their inventory build. In the fourth quarter
> last year they did 1.228M in sales and ended the quarter with 333M
> in inventory (24 days of sales).
> In the fourth quarter just ended they did 997M in sales and ended
> the q with 373M in inventory (34 days).
> As their CEO likes to portray them, they are an "aspirational" brand.
> I would avoid any company with that approach in this market environment.

American Eagle, Abercrombie: Inventory Foretells Margin Squeeze

Time will tell who has the more profitable approach. It could be that Abercrombie is targeting a more affuent consumer and prefers to maintain its image as the elite brand. This may well hurt them in the short term, but longer term it will mean higher margins.

IMO it is a mistake to value stocks based on trough earnings. They are a claim on a long stream of earnings. It is this longer term stream that Abercrombie is seeking to preserve.