A&F Results Confirm International Focus & Solid Growth Outlook

Abercrombie & Fitch (NYSE:ANF) is a leading apparel company that primarily targets teens and young adults in the United States. 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 $60.44, roughly 10% above the current market price. We estimate that A&F stores account for 29% of the company’s stock value compared to 25% for Hollister stores. The Internet & catalog orders contribute around 23%.

For the full fiscal year, net company sales increased by 18%, with company comparable store sales increasing by 7%. The total company Internet & catalog orders sales increased by 41%. However, the company’s operating margin was down by 2.5% for the full year. ((Abercrombie & Fitch Reports 4Q and Full Year Results))

Looking Ahead to 2011

Going into 2011, we expect the company could increase retail prices due to increasing raw material prices. However, with growth in consumer spending expected to pick up in 2011, demand for its clothing should remain strong. The company is also expecting to expand on the international front, which returned 79% growth in fiscal 2010. The company feels that international store sales have the potential to reach 30% by 2012. ^{[1] [2]}

The company’s current strategy for 2011 appears to be to aggressively expand its store count on the international front while it will close down domestic stores that are not performing well getting rid of 10% of its lowest performing  domestic stores. The company plans to spend around $300 million in 2011, which is more than double what it spent last year. Much of this is aimed at its international initiatives. ^{[1] [3]}

The revenue per square foot for both A&F stores and Hollister stores were significantly impacted during the recent economic downturn. However, they recovered considerably in 2010 as the company regained market share. Going forward, we expect their revenue per square foot to further improve driven by a rebound in consumer spending in the U.S. and growing demand at international locations, especially emerging markets in Asia.

You can modify our assumptions in the above charts to create your own forecast.

1. A&F 4Q Profit Almost Doubles On Sales [↩] [↩]
2. Abercrombie to boost spending, expand global reach, Reuters Online, Feb 2011 [↩]
3. Abercrombie to boost spending, expand global reach [↩]