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

Includes: ANF, LB
by: Judy Weil

Hugely successful clothing retailer Abercrombie & Fitch (NYSE: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.