Abercrombie & Fitch Co. (ANF): Can This Apparel Retailer Fatten Your Portfolio?

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Abercrombie & Fitch Co (ANF)Abercrombie & Fitch Co. (NYSE:ANF) is an apparel retailer, specializing in lifestyle branding and operating some 1,000 retail apparel stores across four brands. However, the stock tumbled 8% over the past week; part of this was Abercrombie & Fitch Co. (NYSE:ANF)’s EPS that showed 15% lower same-store sales and 9% lower total sales year-over-year. This led to a $0.09 EPS loss, compared to the consensus forecast of a $0.05 loss.
Some of the other big news causing revolt against the stock was the surfacing of comments made by CEO Mike Jeffries back in 2006, where in an interview Jeffries openly confessed that his brand is “absolutely exclusionary” and that it only “want[s] to market to cool, good-looking people.” Business Insider brought the comments back last week; since then, CEO Jeffries has issued a semi-apology for his previous statements.

I do see the issue of Abercrombie not stocking XL and XXL sizes in women’s clothing as somewhat troublesome. This implies the company does not want “overweight” women wearing its brand.

However, it can be difficult to find a niche for differentiation in the apparel industry, and this is what Abercrombie & Fitch Co. (NYSE:ANF) is trying to do. In the aforementioned 2006 interview with CEO Jeffries, he noted that companies get into trouble by trying to target everybody, including young, old, fat and skinny, saying that you then “become totally vanilla…you don’t alienate anybody, but you don’t excite anybody, either.”

Abercrombie & Fitch Co. (NYSE:ANF) hopes to drive future growth via new brands and store expansion. This includes the pursuit of international growth opportunities in Canada, the U.K., Europe and Asia; expecting to open five flagship, four Gilly Hicks, and 31 Hollister stores in fiscal 2013.

The comps

Some of the other big competitive contemporary retailers include Guess?, Inc. (NYSE:GES), The Buckle, Inc. (NYSE:BKE), and American Eagle Outfitters. Abercrombie & Fitch Co. (NYSE:ANF) operates on a larger scale than any of these three with respect to revenue.

Guess?, Inc. (NYSE:GES) is a specialty retailer of casual apparel, accessories and footwear for young men and women between the ages of 15 and 25. The company was up as much as 8% in a day last week after reporting May-ended quarterly results that showed EPS of $0.14, down from $0.30 in the first quarter last year. However, the $0.14 managed to top analyst expectations of $0.08.

To drive future growth, Guess?, Inc. (NYSE:GES) expects to open 17 stores in North America, 50 stores in Asia, and 70 stores in Europe. But weakness in Europe threatens to be a headwind, including a slowing economy in France, Italy and Spain, which represent 65% of the Guess’ European business.
Buckle up

The Buckle, Inc. (NYSE:BKE) is another contemporary apparel company, with a market leading position in premium denim. However, an expansion into activewear and footwear should help the company capture more share.

Sales are expected to rise 2.7% in fiscal 2014, with low-single digit same-store sales growth thanks to the opening of 13 new stores and seven major store remodels. What’s more is that more than half of The Buckle, Inc. (NYSE:BKE)’s brand-name merchandise is exclusive.
Buckle maintains a shallow assortment of products, which helps with frequent flows of inventory and limits markdown risk. This allows Buckle to enjoy superior margins.

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