ANF Market Research & Analysis Report
Updated Apr 17, 2015

Growth and Balance Sheet

Abercrombie & Fitch Co. (ANF) reported fiscal fourth-quarter earnings of $44.4 million. On a per-share basis, the company said it had net income of 63 cents. Earnings, adjusted for one-time gains and costs, were $1.15 per share. The results beat Wall Street expectations. ANF posted revenue of $1.12 billion in the period, which did not meet Street forecasts. Same-store sales fell 10%. Direct-to-consumer sales rose 4% year over year in the fourth quarter.    

Executive Chairman Arthur Martinez said, "2014 was a year of significant change for Abercrombie & Fitch. I believe these changes put us on the right path to improve profitability and deliver value to shareholders. Our sales for the fourth quarter were somewhat below expectations, but a slightly better gross margin rate and strong expense management enabled us to deliver EPS within our guidance range. For the full year, our results came in well below our initial expectations, as an expected improvement in comparable sales did not materialize, and further progress on expense reduction was insufficient to offset weaker sales."

Valuation

ANF P/E stands at 31.82 above the industry average of 25.71, and above the S&P 500 average of 17.80 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 22.0x to 29.60x trailing 12-month earnings. ANF's current Price/Sales of 0.42; below the average of its industry of 1.22. ANF’s head to head comparison to its main competitors shows that the company has gross margin above it’s peers, and one that is above the industry average. The achieved operating margin of the company is below of the selected competitors, and it is at the industry average. The quarterly revenue growth of the company is -21.25% below the industry average. The stock is currently trading below its intrinsic value of $27.70 this suggests that the stock is currently undervalued at these levels. The beta of 2.16 implies higher volatility of the stock with respect to the S&P 500. ANF has shown neutral earnings consistency over the last five years. Company’s earnings have decreased by 4.43% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 21.25. ANF’s Total Debt/Equity of 24.75 is below the required maximum. ANF’s current price levels are below the maximum level, is trading  49% below the 52 week high of $45.50, and the technical analysis give a neutral view of the stock. The majority of analyst ratings are neutral and bearish. ANF has a dividend payout ratio of 113% and a trailing annual dividend yield of 3.50%.

About ANF

Abercrombie & Fitch Co. (A&F) through its subsidiaries, is a specialty retailer of casual apparel for men, women and kids. Through stores and direct-to-consumer operations, the Company is engaged in selling an array of products including casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, and Hollister brands. In addition, the Company operates stores and direct-to-consumer operations offering bras, underwear, personal care products, sleepwear,  and at-home products for women under the Gilly Hicks brand. The Company operates in three segments: U.S. Stores, International Stores, and Direct-to-Consumer. As of November 2, 2013, the Company operated 904 stores in the United States and 159 stores outside of the United States.

Competitor Comparison

Abercrombie & Fitch Co. (NYSE:ANF) N.V.

Highlights

Abercrombie & Fitch Co., through its subsidiaries, operates as a specialty retailer of casual apparel for men, women, and kids. As of February 1, 2014, the Company operated 46 Websites, including both desktop and mobile versions. In addition, the Websites are available in nine languages, accept seven currencies and ship to over 120 countries. The stock closed yesterday’s trading session at $22.89. In the past year, the stock has hit a 52-week low of $19.34 and 52-week high of $45.50. ANF has a market cap of $1.57 billion and is part of the services sector.

• Unique sales strategy and excellent marketing 
• Dominant market position giving bargaining power with retailers 
• Strong brand name 

• Strong competition limiting market share.
• Slow growth

ANF Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. ANF's 52 week high is $45.50 current price is $22.89, the stock trades 49% below 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 31.82 above the average industry P/E ratio of 25.71 and is well above the S&P 500 P/E ratio of 17.80.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 2.14% of ANF stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

ANF is trading in the range of $19.34 - $23.56 in the past 30 days. The stock has been showing support at $32.30 and resistance in the $33.80 range. The stock is trading above the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 50.79. Our indicators give a neutral view on ANF.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investors sentiment for the stock

The model assigns a value according to analysts’ recommendation for the stock. Analyst rating on Reuters.com is 4 Buy, 3 Outperform, 17 Hold, 8 Underperform and 1 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. ANF’s annual EPS for the last 5 years were 1.73, 1.60, 2.85, 0.69, and 0.71. This type of earnings action is neutral.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 30% or should be less than the average Debt/Equity for its industry. ANF’s have total debt/equity ratio of 24.75% which is positive.

The EPS growth for this quarter relative to the same quarter a year is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. ANF’s EPS growth for this quarter relative to the same quarter a year earlier is -21.25%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. ANF’s annual earnings growth rate over the past five years is -4.43%, below the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.