Abercrombie & Fitch’s Lookin Good To $66 Heading Into Earnings
Teen apparel retailer Abercrombie & Fitch (NYSE:ANF) is scheduled to announce its Q1 fiscal 2012 earning on May 16th. [1] We expect the company to see strong revenue growth and better margins this quarter. Abercrombie & Fitch competes with other specialty retailers such as Aeropostale (NYSE:ARO), American Eagle Outfitters (NYSE:ANF) and Gap Inc. (NYSE: GPS) in the teen apparel space.
The Trefis price estimate for Abercrombie & Fitch stands above $66, which is nearly 40% ahead of the current market price.
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Abercrombie should see strong revenue growth this quarter
We expect Abercrombie & Fitch to post robust net sales and comparable store sales growth on Wednesday. Firstly, the company should gain from warm February and March in 2012, which reflected in a positive increase in comps for teen apparel retailers across the board. However, a relatively cooler April may slightly offset the gains made during the initial two months of the quarter.
Secondly, teen apparel sales should also benefit from higher consumer confidence. Compared to the average consumer confidence index of 60.5 for Q4 2011, the figure climbed a solid 17% to reach around 70 this quarter. The increase in consumer confidence should result in higher number of footfalls among teen consumers and hence higher comparable sales.
Q1 should reflect an improvement in margins
In addition to growth in net sales, we also expect Abercrombie to show a gradual improvement in margins especially on a quarterly basis. It should start realizing the benefits from declining cotton prices. Cotton prices recently slumped to a 21-month low, primarily due to an increase in cotton supply and a decline in Asia’s industrial output. [2]
The gradually improving U.S. macro-economic conditions have also resulted in a decline in promotional scales in the U.S. teen apparel market. A lesser promotional scale for the Spring season should result in higher full-priced merchandise sales for Abercrombie & Fitch, resulting in improved Average Unit Retail (AUR) and hence an improvement in margins.
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Notes:- Abercrombie & Fitch to announce Q1 2012 earnings on May 16th, Source: Abercrombie’s IR [↩]
- Cotton prices at 21-month low, Source: Bloomberg [↩]