Abercrombie & Fitch
) did well in 2011 and regained some market share vs. peers
like Aeropostale (
), J.Crew Group (NYSE:JCG) and
) 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
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
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 &