Abercrombie & Fitch (NYSE:ANF) is a leading apparel company that primarily targets teens and young adults in the US. It competes with retailers like Aeropostale (NYSE:ARO), Gap (NYSE:GPS), J.Crew Group (NYSE:JCG) and Urban Outfitters (NASDAQ:URBN), and owns apparel brands such as A&F, Hollister and Gilly Hicks.
Our price estimate for Abercrombie & Fitch stock is $53.34, roughly 6% below market price. We estimate that A&F Stores account for 37% of the company’s stock value compared to 29% for Hollister stores.
Year End Sales Look Encouraging
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We previously discussed the positive momentum from Abercrombie’s November same-store sales results (see A&F’s Continued Momentum Could Raise Stock Value). For November, the year-on-year increase in the comparable store sales for A&F stores and Hollister stores was 23% and 22% respectively. For December, the comparable store sales for A&F stores and Hollister stores increased year-on-year by 13% and 17% respectively. Year-to-date, company wide comparable store sales are up 8%. 
Abercrombie & Fitch is known for not resorting to discounting in order to protect the premium image of its brands. Therefore the December results for A&F are particularly impressive.
Where Do Sales Go From Here?
RPSF is a critical metric in Abercrombie & Fitch’s stock value and continued growth in comparable store sales in 2011 could produce further upside to our estimates. We currently anticipate increasing revenue per square foot (RPSF) at both A&F and Hollister brand stores through our forecast period as the economic environment improves and consumer spending returns to pre-recession levels. We currently forecast that A&F stores RPSF will reach $470 by the end of our forecast period, while Hollister brand stores will breach $400 during this same period.
To demonstrate the sensitivity of the company’s stock value to this metric, we estimate that a further $50 increase beyond our base projections through our forecast period (for A&F and Hollister stores) could generate nearly 10% upside to our price estimate for Abercrombie & Fitch’s stock, bringing our number slightly ahead of current market price.
The encouraging comparable sales results reported by A&F for November and December were partially affected by issued but unredeemed gift cards that totaled $22 million at the end of Dec ’09, vs. a negligible total at the end of Dec ’10. If an extra $22 million had been spent in Nov/Dec ’09, our RPSF numbers for A&F stores and Hollister stores would be slightly higher for 2009 at $375 and $330 respectively, with the comparable store sales increase for Nov-Dec 2010 period being lower from current levels by around 5%.
Further, one analyst at AlixPartners LLP suggests that clothing retailers overbought Spring merchandise for 2011 after recording strong sales numbers in late 2010. If this is true, it may have a negative impact on the RPSF forecast for major retailers like A&F, as they may end up having a higher than expected inventory towards the end of the Spring season, which they would have to markdown.
We estimate that a $50 decrease beyond our base projections through our forecast period (for A&F and Hollister stores) could generate nearly 8% downside to our price estimate for Abercrombie & Fitch’s stock, bringing our number slightly below the current market price.
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