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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: carepedeum2000 who wrote (16654)	12/13/1999 1:02:00 PM
From: American Spirit	Respond to of 57584

FYI latest earnings report on ANF as it bombs today:Abercrombie & Fitch Easily Exceeds Estimates 11/9/99 After the close of trading on Tuesday, Abercrombie & Fitch (NYSE:ANF - news) reassured investors that the company?s strong brand name has not lost momentum. By posting 50% earnings growth and exceeding our estimate by 13%, the specialty retailer proved that comps in the low teens can easily sustain strong profit growth. In a much publicized event, Abercrombie shares were hit hard last month when the company selectively warned an analyst at Lazard Freres that third quarter comps would not live up to the 17% The Street had established as a ?whisper? number. For the third quarter, ended October 30, sales rose 25% to $287 million, while earnings came in at $0.36 per share, a 50% increase from the prior year and $0.04 per share ahead of our estimate (Street consensus was $0.31 per share). Third quarter comps came in at 11% versus a difficult comparison of 35% in the prior year?s quarter. It is important to note here that the company?s growth model calls for 5-6% comps in order to grow earnings 30% per year. Higher merchandise mix and leveraging of occupancy expenses boosted gross margin, while effective expense leverage led to significant operating margin improvement. Gross margin improved to 42.5% from 38.9% and operating margin came in at 22% versus 17.7% in the third quarter of fiscal 1998. Inventory increased 8% per square foot, which is within company goals, while cash stands at $140.7 million ($1.30 per share) and the balance sheet remains debt free. On the conference call, CEO Mike Jeffries was satisfied with the quarter and notes that the fourth quarter has gotten off to a good start. The only area of weakness is in the women?s division, which accounted for about 45% of third quarter sales. Although the company does not break out results, management did state that women?s comps were ?weak.? Jeffries has, however, instituted changes that he believes will lead to significant improvement in coming quarters. Sales of men?s clothing have been very strong and the kid?s concept (abercrombie) continues to exceed expectations. In the fourth quarter, the company plans to open 7 adult stores and 13 abercrombie venues. In July of next year, the company plans to open five stores involving the new concept and finished the quarter with 220 stores, including 22 abercrombie locations. In general, third quarter results show that the Abercrombie brand name is not losing momentum. We believe that the company?s business remains very strong, as we head into the seasonally strong holiday season. Our concern at this point, remains centered on the credibility issue stemming from the lawsuits about the selective disclosure issue. We believe that this concern could limit the multiple from expanding to levels seen in the past. We expect the company to earn $0.73 per share in the fourth quarter and are raising our estimates to $1.37 per share (from $1.33 per share) in fiscal 1999 and to $1.78 per share (from $1.73) in fiscal 2000. We continue to believe that upside exists in these numbers based on continued margin expansion and comps that remain well above the company?s 5-6% goal. We maintain our buy rating on the shares, but are lowering our target multiple to 25 times from 30 times to reflect the litigation overhang. We expect the shares to trade at 25 times our fiscal 2001 estimate, for a price target of $45. Analyst: Chris Bulkey Updated on 11/9 with ANF trading at $27.18