Abercrombie & Fitch Co. (NYSE:ANF) shareholders have had a bit of a roller-coaster ride over the past several years. This company has several brands that are and have been popular among the “cool kids” even since I was in high school. However, as their products are relatively expensive, the recession of a few years ago hit Abercrombie particularly hard, as it did most retailers of “luxury” items.
With the massively declining sales during the recession, the stock hit a low of $13.66 in 2009, down from the peak of $85.77 just the year before. Since then, the company’s cost-cutting and growth efforts have paid off; sales are up, and the shares have rebounded nicely. With the company set to report earnings on February 13, shareholders will be looking for signs that in 2012 the company continued on the right path for growth.
Abercrombie has been around since 1892; however, it gained its widespread popularity much more recently, with most of its rapid growth occurring in the 1990’s. Sales rose from $85 million in 1992 to $1 billion by 1999, and have continued to climb steadily to over $4 billion today.
The company operates four retail brands; Abercrombie and Fitch, Abercrombie Kids, Gilly Hicks, and Hollister Co., with a total of over 1,000 stores. Most of the company’s stores are in the U.S., with 131 of the stores being international.
Abercrombie’s target demographic is the 7-24 age group, with a special emphasis on teenagers (and those who wish they were still teenagers). According to consumer data reports, this age group accounts for 31% of apparel spending, with teenagers accounting for 18%. Teens tend to have the most apparel spending influence of all age groups, which is the main reason that Abercrombie (and others) tailor their clothing lines to teens’ preference.
Growth Prospects
Abercrombie’s plans to increase shareholder value are more focused on getting rid of underperforming stores than they are on growth and expansion. Since 2010 the company has closed 135 stores, with another 180 underperforming stores identified as possible closures by 2016. The company wants the primary driver of growth to be increasing same-store sales, as well as increasing their online business, where overhead is much less.
That said, there are some international markets that Abercrombie has active plans to expand into, particularly the U.K, Canada, and Asia. During 2013, the company plans to open a total of 40 stores (mostly Hollister) in those countries.
Finally, one of the best ways the company plans to return value to its shareholders is through its aggressive buyback program, which was increased this past year to authorized buybacks of 22.9 million shares. Bear in mind, there are only 79.6 million outstanding shares currently.
Valuation
Speaking of creating shareholder value, those who invest now may be handsomely rewarded if the company’s plans pan out over the next few years. When the company reports its earnings, the consensus calls for $2.98 per share for the fiscal year, meaning Abercrombie trades at 17.1 times earnings.
