Abercrombie & Fitch
(
ANF
) at its investor day earlier this month raised its revenue and
profit forecasts considerably, which helped lift shares.
Our price estimate for Abercrombie & Fitch
stock is $60.44
, which is around 15% below the current market price. We
estimate that Abercrombie & Fitch stores contribute around 29%
to the company's stock price with Hollister stores contributing
another 25%. Abercrombie & Fitch competes with other specialty
retailers like Aeropostale (
ARO
),
Gap
(
GPS
) and Urban Outfitters (
URBN
).
Abercrombie & Fitch Expects Strong Growth in Coming
Years
The company expects to have annual sales of $7.5 billion by
2016, over two times its net sales for fiscal 2010. The retailer is
aggressively expanding abroad in Europe and Asia, hoping to benefit
from the strong growth in the demand for specialty apparel being
witnessed in these regions. In particular, emerging markets in Asia
are becoming the focal point of leading specialty apparel retailers
across the world that hope to leverage the growing demand for high
end fashion resulting from favorable demographics and increasing
disposable income of people in these regions.
The company plans to open 40 Hollister stores and and 10
Abercrombie & Fitch stores abroad this year, with similar
growth rates to be maintained in the coming years. Its
international comparable store sales so far have also been
encouraging.
Upside to Revenue per Square Foot
The revenue per square foot for both Abercrombie & Fitch
stores and Hollister stores fell considerably during the recent
economic downturn. The company is an upmarket retailers with
significantly higher price points than most of its peers, and is
bound to suffer in the event of a sharp drop in consumer spending
as witnessed during the recent economic downturn. However, with the
economic environment improving in 2010, the revenue per square foot
of both Abercrombie & Fitch stores and Hollister stores picked
up.
Going forward, we expect them to increase from current levels to
$520 and $450 respectively, by the end of our forecast period.
However, with the outlook for consumer spending in the US looking
strong and the company benefiting from international expansion, if
the revenue per square foot for both Abercrombie & Fitch stores
and Hollister stores increase at a faster rate and are 20% higher
from our current forecasts at the end of our forecast period, it
would result in an upside of around 10% to our current price
estimate for Abercrombie & Fitch's stock.
See the full analysis for Abercrombie &
Fitch