Stock of the Day
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Abercrombie & Fitch (ANF)
Abercrombie Beats Expectations But Lowers Guidance
At first glance, one would think Abercrombie stock would be through the roof after an impressive earnings report that revealed a 58 percent increase in earnings over the same quarter last year. Yet even the solid sales numbers could not overshadow the weaker than expected outlook for 2006. Was the ceiling set too high for Abercrombie? Or is this just an attempt to reign in out of control expectations?
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| Stock Analysis |
Net profit rose 58 percent from $1.15 per share to $1.80 per share. Net revenue rose 40 percent from $687.3mn to $961.4mn. While other retailers were slashing their prices to attract holiday shoppers, Abercrombie let their brand do the talking and kept their full prices, avoiding the smaller margins that others have faced. Christine Chen, an analyst for Pacific Growth summed up the company's status by saying, “All three of their brands are doing absolutely awesome. They are the coolest kid in town. They look better than anyone else does in their space, in the mall. If there's any teen retailer that's well positioned for 2006, it's them.”
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Well what about this year? Abercrombie plans to add 64 Hollister stores, 19 abercrombie, 12 Abercrombie & Fitch, and eight RUEHL stores. But even with the impressive expansion, Abercrombie executives feel they may have set the bar too high for 2006. CEO Mike Jeffries best summed up the coming year by explaining, “After such an amazing year, we're faced with the challenge of improving what has become a hugely successful business. While it is difficult to predict what business trends for fiscal 2006 will be, it is certain that productivity increases will moderate during the years, based upon the extraordinary comparable-store increases achieved in fiscal 2005.” Analysts were predicting earnings per share of about $1.32 for the first half of 2006. Abercrombie execs believe this number will be more in the range of $1.23 to $1.28 a share. Quite a big difference, and definitely substantial enough to warrant investor concern.
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Going into the Abercrombie earnings report, the majority of analysts rated the stock as a buy. Now with the lowered expectations for 2006 we might have to wait and see if any of them change their mind. It's too early to tell if the company can sustain its impressive same store sales growth, or if the newly built stores will continue to drive up revenues to the point where they beat expectations. One thing we can be sure of though, is that Abercrombie is definitely a stock to watch over the coming months.
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Profile |
The Company's principal activity is the retail distribution of casual apparel, personal care and other accessories for men, women and kids. The Company markets its products under the brand names Abercrombie & Fitch, Abercrombie and Hollister Co. Hollister Co is a west coast oriented brand which targets 14 to 17-year-old high school guys and girls, at lower price points than Abercrombie & Fitch. The apparel can also be purchased through A&F Quarterly catalogue/magazine and through the web site. As of 15-Jun-2005, the Company operated 351 Abercrombie & Fitch stores, 167 Abercrombie stores, 260 Hollister stores and 5 RUEHL stores.
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