A&F Looking Abroad for Growth

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Abercrombie & Fitch ( ANF ) did well in 2011 and regained some market share vs. peers like Aeropostale ( ARO ), Gap ( GPS ), J.Crew Group (NYSE:JCG) and Urban Outfitters ( URBN ) as consumer spending improved from previous lows and the company took to limited discounting to generate sales, an approach that it long eschewed. However, with the economic environment improving and raw material costs increasing, the company should start to raise prices on certain products this year.

Our price estimate for Abercrombie & Fitch stock is $60.44, roughly 10% above the current market price.


Looking Abroad for Growth

Abercrombie & Fitch already has a very strong presence in U.S. and now is looking to fast forward its growth plans abroad. It plans to spend around $300 million in 2011 mostly for setting up stores in Europe and Asia. It plans to close around 50 under performing stores in the U.S. as well as focus on growth in new markets, like the Asian market.

With strong comparable sales growth at its international stores, particularly in the UK, Abercrombie & Fitch is looking to further expand its presence in the European market. In addition to this, the company has plans to focus on the growing Asian market, which is becoming a hotbed for growth in the global retail industry.

Marketing to Asian Markets Will be Key

As Asian consumers, backed by growing disposable incomes, are showing an inclination toward luxury goods and western brands, Abercrombie & Fitch can leverage its image as a trendy, upscale brand to gain a foothold in this market.

The number of Abercrombie & Fitch stores has been falling recently. However, as the economy recovers we expect the company to increase its rate of opening new stores abroad and slow down the pace of closing stores in the U.S. We expect the number of Abercrombie & Fitch stores to reach around 325 by the end of our forecast period.

However, the number of Hollister stores have been increasing, through the rate of growth has slowed down since the economic downturn. We expect the number of Hollister stores to further increase and reach around 620 by the end of our forecast period., with increase in number of stores weighted more towards international locations.

However, with the company is able to generate strong sales from international locations over the next few years, it may further increase its expansion rate abroad, supported by from strong demand from these locations. If by the end of our forecast period,  the number of Abercrombie & Fitch stores and Hollister stores end up being 20% higher than our estimates, there can be an upside of around 10% to our current price estimate for Abercrombie & Fitch's stock price.

See the full analysis for Abercrombie & Fitch



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AEO , ANF , ARO , GPS , URBN

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