Thursday, March 09, 2006

Abercrombie is Too Cheap

Abercrombie is trading at just 15x earnings. Most of the recent drop is due to the company failing to meet same-store-sales expectations. Analysts were looking for a whopping 13% month-on-month growth in sales, but they came in at around 6%, which is particularly robust in my opinion. What analysts forget is that February saw some of the coldest weather in recent history in the East. It doesn't take a genius to figure out that spring apparel doesn't sell when NYC is having a blizzard. The same-store-sales shortfall is likely an aberration.

The company is a proven brand creation machine. After hugely successful Hollister they are pushing forward with Reuhl, which is geared toward the twenty-something age group. I have no doubts that they will continue pushing forward solid brands, just as they did with Abercrombie Kids.

The market is currently holding a 20% off sale. Fair value is somewhere in the $68-$72 range. The market has been pessimistic in the entire retail sector. Urban Outfitters met expectations with morning but is off about 15%. It’s time to load up on ANF.

See chart:


Firefly said...

You make some good points here - and I'd like to get into ANF but think it's going down further. The market is seeking bottom.