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Investment Overview for Abercrombie & Fitch Co. (NYSE:ANF)
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- Hollister Stores Revenue per Square Foot: Hollister stores revenue per square foot increased by a massive 21% in 2011 to reach $450. The increase was primarily due to strong performance of Hollister in international markets. We expect the trend to carry forward, and forecast revenue per square to increase aggressively and reach $672 by the end of the Trefis forecast period.
However, the current weak macro-economic conditions in Europe threaten to put a break on Hollister's international growth. If weak macro-economic situation in Europe persists and revenue per square foot declines to $512 by the end of the Trefis forecast period, there could be a downside of 10% to Trefis price estimate. Conversely, if the European economy recovers fast and revenue per square foot increases to $835 by the end of the Trefis forecast period, there could be an upside of 10% to the price estimate.
- Hollister Stores EBITDA Margin: Though Hollister Stores EBITDA Margin declined in 2011 due to an increase in cotton costs, we expect the figure to improve gradually as cotton prices decline and the company expands to international markets where it can realize higher full priced merchandise sales. We expect the figure to reach 18.9% by the end of the Trefis forecast period.
However, if the apparel market continues to be exceptionally promotional and margin's plummet further to 16.5% by the end of the Trefis forecast period, there could be a downside of 5% to our Trefis price estimate. Conversely, if the macro-economic conditions improve and promotional environment ceases to continue and margins increase to 20.5%, there could be an upside of 5% to our Trefis price estimate.
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Abercrombie & Fitch is a specialty retailer that operates stores and websites selling casual sportswear apparel, including knitted and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women and kids under the Abercrombie & Fitch, Abercrombie kids and Hollister brands. In addition, the company operates stores and a website offering bras, underwear, personal care products, sleepwear and at home products for women under the Gilly Hicks brand.
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Hollister stores revenue per square foot and number of Hollister stores
Solid international business was the primary growth driver for Hollister stores revenue per square foot in 2011. Additionally, Abercrombie doubled its intentional Hollister stores count in 2011 by opening 39 new stores. The company plans to open another 40 international Hollister stores in 2012.
Rapidly growing direct to consumer business
Internet revenues increased from $310 million in 2008 to $550 million in 2011. The aggressive growth is expected to continue going ahead, as Abercrombie aims to become a $1 billion e-commerce brand and the development of e-commerce channels remain a high priority for the company.
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Continuing promotional environment in teen apparel market
The U.S. teen apparel market is currently highly promotional, where each retailer is trying to outsmart the other with a broader and deeper set of promotions. The trend is expected to continue until the U.S. economy recovers fully.
Weak macro-economic conditions in Europe
High growth in European business was the primary catalyst behind Abercrombie's success in recent years. However, continuing weak macro-economic conditions in Europe threaten to put a brake on this growth. This trend was quite visible in Q1 2012, as Abercrombie & Fitch's stock crashed by nearly 15% primarily due to a slower international business growth.
International expansion
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 take advantage of the growing Asian market, which is becoming a focal point of the global retail industry, with major retailers across the globe fast forwarding their plans of growing their presence in this region.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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