We retained our Neutral stance on
Abercrombie & Fitch Co.
) on the back of robust third-quarter 2012 results and an upbeat
outlook, offset by concerns regarding declining comparable-store
sales (comps) trends. However, the company holds a Zacks Rank #2
Driven by strong top-line growth coupled with improved margins
and lower tax rate, Abercrombie's third-quarter 2012 earnings
surged over 52% to 87 cents per share and surpassed the Zacks
Consensus Estimate of 59 cents. Total sales went up 9% to $1,170
million and beat the Zacks Consensus Estimate of $1,115
Based on strong quarterly performance, Abercrombie raised its
earnings guidance for fiscal 2012 to $2.85 - $3.00 per share,
from its earlier guidance range of $2.50 - $2.75.
This premium casual apparel retailer has to its credit a strong
portfolio of well established brands, each of which is focused on
the unique characteristics and rapidly changing preferences of
its target customers. Moreover, with its unique and
sexually-explicit advertising strategy, the company's apparels
are a major attraction for its target customers.
Additionally, we believe the company's recent shift in focus
towards closing underperforming stores in the U.S. and
accelerating expansion in international markets, should help
boost top-line growth as well as enhance profitability.
Abercrombie has planned to open a total of 20 Hollister stores
internationally in 2013.
However, despite the solid quarterly result and upbeat outlook,
our long-term Neutral view on Abercrombie is guided by
apprehensions regarding its declining comps, which continue to
weigh upon its performance. Further, we believe that the
company's over-dependence on outside suppliers, intense
competition from discount retailers as well as seasonality of
business may undermine its growth prospects.
Other Stocks to Consider
Besides Abercrombie, other stocks to consider in the specialty
retail sector are
American Eagle Outfitters Inc.
Chico's FAS Inc.
). These companies carry a Zacks Rank #2 (Buy).
AMER EAGLE OUTF (AEO): Free Stock Analysis
ABERCROMBIE (ANF): Free Stock Analysis Report
CHICOS FAS INC (CHS): Free Stock Analysis
GAP INC (GPS): Free Stock Analysis Report
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