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Flash Player 9 or higher is required to view the chart Click here to download Flash Player now See all Bulls Reasons Bulls: Reasons To Buy Expansion plans 100% agree Expansion plans A&F's plans to expand its brand outside the US will bring massive growth to the company and the stock. After the successful opening of its store in London, the company looks set to expand rapidly in the next 5 years as it looks to leverage upon its brand image and build up high margin international sales. View or Edit Reason 3 votes 100% agree Gilly Hicks could provide the growth for A&F 100% agree Gilly Hicks could provide the growth for A&F If A&F can leverage its popularity and sex appeal in its newest concept, Gilly Hicks could provide the catalyst for growth that A&F needs for the next ten years. Gilly Hicks can't help but make money selling high-margin underwear and body products. View or Edit Reason 1 votes 100% agree People willing to pay premium prices for the clothes 50% agree People willing to pay premium prices for the clothes As long as A&F brands are popular, teens (and adults) will be willing to pay premium prices for their clothes. A slow-but-sure increase in prices at the Hollister brand will likely increase profit (as it did years ago when A&F raised prices). View or Edit Reason 2 votes 50% agree Add your own Bulls Reason See all Bears Reasons Bears: Reasons To Sell Fears that it has already peaked 100% agree Fears that it has already peaked A&F could be at the peak of its popularity in the US, especially with the notoriously fickle teenage segment of the population. A&F has been forced to tone down its image as it has gone mainstream. View or Edit Reason 1 votes 100% agree Trouble expanding over the future 50% agree Trouble expanding over the future Given A&F's rapid expansion over the past 10 years, the company may have trouble expanding at similar rates in the future. View or Edit Reason 2 votes 50% agree In direct competition with Victoria's Secret 0% agree In direct competition with Victoria's Secret A&F's entry into the underwear category with Gilly Hicks makes A&F a direct competitor of the enormously successful Victoria's Secret. View or Edit Reason 1 votes 0% agree Add your own Bears Reason Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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Abercrombie & Fitch (NYSE: ANF) sells its own brand of fashion-conscious clothing and accessories to a customer base that is primarily under 30 years old. Abercrombie sells the vast majority of its wares in American malls through its four different store brands (Abercrombie & Fitch, abercrombie, Hollister, and RUEHL)^[1], each of which caters to different age groups.^[2] The company generated over $3.7 billion in sales in 2007, up from $3.3 billion in 2006, on which it earned $2.5 billion of gross profit and $740 million of operating profit.^[3] Abecrombie started fiscal 2008 with net sales growth of 8% to $800.2 million in the first quarter, despite a 3% decrease in same store sales. The company announced at the end of the first quarter that it was slightly scaling back its store opening plans for 2008, to a 10% increase in gross square footage during the year, down from a previous 11% mark.^[4]

As a "near luxury" retailer, the Abercrombie sells its clothing and accessories for a price premium. In addition, unlike almost every one of its competitors, the company does not engage in "sales" (i.e., price discounting), which helps keep its gross margins of 67%^[5] well ahead of its key competitors, American Eagle (48%^[6]) and Aeropostale (32%^[7]).

Throughout 2006, ANF increased its presence in Canada and Europe. By mid-2007, the company had 6 outlets in Canada ^[8], which performed impressively by generating sales three times higher than its average American store. ANF also opened its first European store in March 2007 with a Abercrombie & Fitch flagship store in London, England.^[9] ANF has plans for continuing its international expansion, with stores in Europe and Japan opening in the next few years. The company also announced a new concept, Gilly Hicks, at the beginning of 2008 which will offer underwear and lingerie to young men and women. As of May 2008 there are 5 Gilly Hicks stores open in the US, with plans to open 14 more during 2008.

[edit] Business Overview

ANF sells premium-priced apparel and accessories and through its five independently-branded stores: Abercrombie & Fitch; abercrombie; Hollister Co.; RUEHL No.925; and its newest concept Gilly Hicks. ANF's five different brands target different sub-sections of consumers aged 7-30 years, with sales split by gender approximately 60%/40% male/female in 2006^[10] (combining categories by gender across all stores and brands). At the end of the first quarter of fiscal 2008 the company operated 1,053 store locations across its five brands in the U.S., Canada and the U.K. ANF plans on increasing gross square-footage by approximately 10% during fiscal 2008 (revised down from 11% after the first quarter of FY08) with 104 new stores in the U.S. and four Hollister stores in the U.K.^[11]

ANF manufactures and distributes its own private label clothing under each of its four in-house brands. Each of ANF's brands also sells products to customers directly via catalogs and e-commerce operations. ANF's direct-to-customer operations generated over $258 million of sales in 2007, up 49% from 2006.^[12] The direct-to-customer segment has continued to grow in fiscal 2008, with direct sales increasing 44% in the first quarter to $62.5 million compared to the same quarter of 2007.

The company generated over $3.7 billion in sales in 2007, up from $3.3 billion in 2006, on which it earned $2.5 billion of gross profit and $740 million of operating profit. ^[13] ANF's premium-quality business model translates into high operating costs and the company spent over $1.3 billion on store and distribution expenses which includes store remodeling and costs associated with its distribution centers.

Abercrombie has hit a rough patch in 2008 as it has struggled to grow its same store sales which declined 3%^[14] and 4%^[15] in Q1 and Q2 of FY08, respectively. Despite struggling to grow same store sales, net sales increased 8%^[14] and 5%^[15] in the same two quarters, driven by increases in direct-to-consumer sales and new store openings.

[edit] Trends and Forces

[edit] International Expansion Opportunities

By the end of 2007, ANF had 7 international stores between its locations in Canada and the United Kingdom. The company has 3 namesake Abercrombie & Fitch stores and 3 Hollister stores in Canada as well as one Abercrombie & Fitch location in London, England.^[19] ANF's international stores have been successful, with the Canadian stores generating approximately three times the sales of its American counterparts.^[20]

The company announced plans to continue expanding its operations throughout the globe over the next few years:

• The Hollister brand will launch in the United Kingdom with four store locations in 2008.^[21]
• The company has announced plans to open a flagship Abercrombie & Fitch namesake store in Japan, where luxury consumption is strong; by 2007, ANF had secured and leased a location for the store in the premier Ginza shopping district of Tokyo and planned to open in early 2009.^[22]
• ANF will open its second Abercrombie & Fitch flagship store in Europe in 2009 in Copenhagen, Denmark. The company is currently working towards securing store locations in Italy, France, Germany, Spain, and Sweden.^[23]

[edit] Seasonal Strength in the Second Half of the Year (Back-to-School and Holidays)

• Back-to-School: Because the overwhelming majority of the customers of ANF's brands range from 7 to 22 years old, many are students at some level of education. As a result, ANF traditionally experiences a significant boost in sales during the end of summer as students shop in preparation for school. The back-to-school shopping season also boosts sales for ANF's competitors such as American Eagle Outfitters (AEO), Aeropostale (ARO) and Pacific Sunwear of California (PSUN). Importantly, ANF's competitors branding strategies allow for sales, whereas ANF's does not, which can hinder ANF's success in the highly promotional back-to-school shopping season. Most of the back-to-school sales are included the third fiscal quarter, for which this year ANF only saw 1% same store sales growth while its competitors (American Eagle Outfitters (AEO), Aeropostale (ARO) and Pacific Sunwear of California (PSUN)) saw same store sales growth of 2%,^[24] 1.9%^[25] and 5% respectively.^[26] This indicates that ANF did not perform as strongly as its competitors in the back-to-school season.

• Holiday Season: The retail industry typically sees a large boost in sales leading up to the holidays in November and December. ANF is no different, as ANF's fourth quarter sales have been nearly twice as large as their first quarter sales in 2005 and 2006.^[27] It is important to note that, while many retailers offer discounts during the holiday season, especially during 2008 in order to encourage spending in a suffering economy, ANF refuses to discount any of its products, even if its sales suffer as a result.^[28] Doing so would run the risk of tarnishing the high-fashion, luxurious image the brand tries to cultivate and thus decrease demand. This can come at the price of decreased sales during holiday 2008 as consumers decide to "trade down" to less expensive alternatives in order to save money.

[edit] Hard to Predict Fashion Trends

Fashion tastes are notoriously fickle, and retailers in this market, like ANF, rely heavily on correctly predicting these trends. Because of the high-end nature of the ANF business model, the company spends more capital on running and maintaining its stores than some of its competitors. Thus a missed trend, or a misjudged trend, can seriously hurt ANF in the form of missed sales or built up inventory. Inventory issues are particularly important to ANF because the company does not engage in "sales" that could negatively affect the luxury status of its merchandise. Since the company does not discount merchandise, it has a more difficult time selling backed up inventory than its competitors that engage in "sales".

[edit] New Brand/Store Concept: Gilly Hicks

ANF announced in 2006 that it would be launching a new store "concept" in early 2008. This concept has been launched as Gilly Hicks, with three stores open at the end of FY 2007. The company invested a significant amount of capital into the project, spending $7.5 million in 2006 and approximately $12 to $15 million in 2007 preparing for the launch.^[29] The new concept "Gilly Hicks" is a Sydney, Australia-themed underwear store targeting young female customers with lingerie and personal care products. The first three stores have opened in premier shopping centers in the US, including at the Mall of America. The company plans to open 16 more Gilly Hicks locations during the 2008 fiscal year.

[edit] Competition

ANF competes with a bevy of apparel and accessory retailers competing for the 14-30 year old demographic. ANF has consistently been at the top of its sector in terms of profitability and sales. ANF's 66.6% gross margin in 2006 was by far the highest out of all of its competitors, largely because ANF's prices are considerably higher than those of its competitors and because the company does not discount its merchandise to the degree of its competitors. As a point of reference, the approximate average price for a pair of men's jeans at Abercrombie & Fitch is $80 compared with $45 at American Eagle, $25 at Aeropostale and $50 at Gap.

Abercrombie & Fitch's competitors include:

• American Eagle Outfitters (AEO): American Eagle competes directly for the same customers (young men and women between the ages of 15 and 25)^[30] with Abercrombie & Fitch and Hollister stores; also, American Eagles new Martin + OSA stores compete with ANF's RUEHL. AEO is smaller than ANF in terms of total sales and profits, but AEO has exhibited stronger growth recently than ANF.^[31]
• Aeropostale (ARO): Aeropostale is a smaller company than ANF, operating only one brand of stores that targets 14 to 17 year olds. Aeropostale's business model also relies heavily on sales and promotions as opposed to ANF's high-quality, premium-price strategy.^[32] However, Aeropostale recently launched a new concept called Jimmy'Z, which is a chain of stores targeting 18-24 year olds with surf inspired apparel which will compete directly with Hollister stores if the concept grows.
• Pacific Sunwear of California (PSUN): Pacific Sunwear primarily serves several different customer segments through its three retail chains: PacSun, demo, and One Thousand Steps. PacSun stores are based mostly around trends in the alternative sports (surfing, snowboarding, skateboarding, etc.) lifestyle and offer third-party branded as well as private label apparel, footwear and accessories to teenagers and young adults.^[33] Finally, demo stores target 16 to 24 year olds with fashion and accessories influenced by hip-hop lifestyle and One Thousand Steps offer a wide range of casual footwear to the 18 to 24 year old customer segment.^[34] Because Pacific Sunwear's operations depend largely upon third-party brands, footwear and different lifestyle-focused customer segments it is less comparable to ANF than American Eagle Outfitters (AEO) or Aeropostale (ARO).
• Urban Outfitters (URBN): Urban Outfitters is a relatively young retailer that operates three different branded store chains, Urban Outfitters (18 to 30 year olds), Anthropologie (30 to 45 year old women), and Free People (16 to 35 year old women).^[35] Urban Outfitters is not as directly comparable to ANF due to its slight differentiation in targeted customer segments.
• Gap (GPS): Gap is a much larger company than ANF in terms of sales, stores and customer segments targeted. Through variations on Gap (Gap Kids, babyGap, Gap Maternity) the retailer serves a wide range of customers; also, Banana Republic and Old Navy stores serve different socio-economic segments.^[36] Because of the wider range of customers, Gap doesn't match up with ANF as closely as some other competitors, however there is considerable overlap.

Note: *:Much of Urban Outfitters' revenue is generated through wholesale and internet orders so sales per store is not reflective of store-only sales.

 Abercrombie & Fitch Company

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	Select All  |  Select None Companies Nordstrom (JWN) Gap (GPS) Limited Brands (LTD) American Eagle Outfitters (AEO) Abercrombie & Fitch Company (ANF) AnnTaylor Stores (ANN) Aeropostale (ARO) Big Dog Holding (BDOG) Buckle (BKE) Bakers Footwear Group (BKRS) Cache (CACH) Christopher & Banks (CBK) Charlotte Russe Holding (CHIC) Charming Shoppes (CHRS) Chico's FAS (CHS) Casual Male Retail Group (CMRG) Dress Barn (DBRN) DSW (DSW) Finish Line (FINL) Foot Locker (FL) Genesco (GCO) Guess? (GES) Hot Topic (HOTT) J. Crew Group (JCG) Men's Wearhouse (MW) Mothers Work (MWRK) New York (NWY) Pacific Sunwear of California (PSUN) Ross Stores (ROST) Retail Ventures (RVI) Shoe Carnival (SCVL) Shoe Pavilion (SHOE) Stein Mart (SMRT) Stage Stores (SSI) Talbots (TLB) Tween Brands (TWB) Urban Outfitters (URBN) Wilsons The Leather Experts (WLSN) Zumiez (ZUMZ) Citi Trends (CTRN) Gymboree (GYMB) Children's Place Retail Stores (PLCE) Collective Brands, Inc. (PSS) Cato (CTR) Lululemon (LULU) Dick's Sporting Goods (DKS) Wet Seal (WTSLA) Jos. A. Bank Clothiers (JOSB) Cancel

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Company	Data From	Sales per Store	Revenue	Comparable Sales Growth	Net Income	Website and Catalogue Sales
Abercrombie & Fitch Company (ANF)	2007	$3.47M[43]	$3.75B[44]	(1%)[44]	$476M[44]	$298M[45]
Aeropostale (ARO)	2007	$1.93M[46]	$1.59B[46]	3.3%[47]	$129M[46]	Add
American Eagle Outfitters (AEO)	2007	$3.1M[48]	$3.06B[48]	1%[48]	$400M[48]	Add
Gap (GPS)	2007	$4.99M[49]	$15.8B[50]	(4%)[50]	$833M[50]	$903M[51]
Urban Outfitters (URBN)	2007	$5.81M[52]	$1.22B[53]	(6.2%)[54]	$116M[53]	$21.8M[55]

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[edit] References

1. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Overview", p.15
2. ↑ Abercrombie & Fitch Investor Website, "Our Brands"
3. ↑ Abercrombie & Fitch (ANF) Press Release, "Fourth Quarter Earnings Release"
4. ↑ Abercrombie & Fitch (ANF) Press Release, First Quarter 2008 Earnings Release
5. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Financial Summary", p. 11
6. ↑ American Eagle Outfitters (AEO) Annual Report 2006
7. ↑ Aeropostale (ARO) Annual Report 2006
8. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Chairman's Letter", p. 6
9. ↑ Abercrombie & Fitch (ANF) News Release, "Abercrombie & Fitch Announces Flagship Opening on Savile Row"
10. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Fiscal 2006 Results: Net Sales", p. 15
11. ↑ Abercrombie & Fitch (ANF) Press Release, First Quarter 2008 Earnings Release
12. ↑ Abercrombie & Fitch (ANF) Press Release, Fourth Quarter Earnings Release
13. ↑ Abercrombie & Fitch (ANF) Press Release, Fourth Quarter Earnings Release
14. ↑ ^{14.0 14.1} Abercrombie & Fitch (ANF) Press Release, First Quarter Results 2008
15. ↑ ^{15.0 15.1} Abercrombie & Fitch (ANF) Press Release, Second Quarter Results 2008
16. ↑ Abercrombie & Fitch (ANF) 10-K 20007, "Financial Summary", p. 34
17. ↑ Abercrombie & Fitch (ANF) 10-K 2007, "Financial Summary", p. 34
18. ↑ Abercrombie & Fitch (ANF) First Quarter Earnings Release 2008
19. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Chairman's Letter", p. 6
20. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Chairman's Letter", p. 6
21. ↑ Abercrombie & Fitch (ANF) Press Release, Fourth Quarter Earnings Release
22. ↑ Abercrombie & Fitch (ANF) News Release, "Abercrombie & Fitch Announces Planned Tokyo Store in 2009"
23. ↑ Abercrombie & Fitch (ANF) News Release, First Quarter 2008 Earnings Release
24. ↑ American Eagle Outfitters (AEO) Third Quarter Earnings Release
25. ↑ Aeropostale (ARO) Third Quarter Earnings Release
26. ↑ Pacific Sunwear of California (PSUN) Third Quarter Earnings Release
27. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Quarterly Financial Data", p.40
28. ↑ "Abercrombie Fights Discount Tide." Wall Street Journal
29. ↑ Abercrombie & Fitch (ANF) Annual Report 2006, "Chairman's Letter", p. 5
30. ↑ American Eagle Outfitters (AEO) 10-K 2006, "Business", p. 1
31. ↑ American Eagle Outfitters (AEO) Annual Report 2006
32. ↑ Aeropostale (ARO) Annual Report 2006
33. ↑ Pacific Sunwear of California (PSUN) Corporate Website
34. ↑ Pacific Sunwear of California (PSUN) Corporate Website
35. ↑ Urban Outfitters (URBN) Corporate Website
36. ↑ Gap (GPS) Annual Report 2006
37. ↑ Pacific Sunwear of California (PSUN) Press Release, Fourth Quarter Earnings Release
38. ↑ Abercrombie & Fitch (ANF) Press Release, Fourth Quarter Earnings Release
39. ↑ Aeropostale (ARO) Press Release, Fourth Quarter Earnings Release
40. ↑ American Eagle Outfitters (AEO) Press Release Report, Fourth Quarter Earnings Release
41. ↑ Urban Outfitters (URBN) Press Release, Fourth Quarter Earnings Release
42. ↑ Gap (GPS) Press Release, Fourth Quarter Earnings Release
43. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 28, Item 7, Financial Summary
44. ↑ ^{44.0 44.1 44.2} Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 25, Item 6: Selected Financial Data
45. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 4
46. ↑ ^{46.0 46.1 46.2} Aeropostale, FY2007 10-K, 04/01/08, Item 6: Selected Financial Data, pg. 17
47. ↑ Aeropostale, FY2007 10-K, 04/01/08, Item 7: Key indicators, pg. 19
48. ↑ ^{48.0 48.1 48.2 48.3} AEO FY2007 10-K, 04/02/08, Item 6: Selected Consolidated Financial Data, pg. 16
49. ↑ GPS 2008 10-K
50. ↑ ^{50.0 50.1 50.2} GPS Annual Report FY2007, ending 2/2/2008, Item 6: Selected Financial Data, pg. 15
51. ↑ GPS Annual Report FY2007, ending 2/2/2008, Item 7: Results of Operations, Net sales, , pg. 18
52. ↑ URBN, 2006 10-K, Item 15, Pg F-8
53. ↑ ^{53.0 53.1} URBN, 2006 10-K, Item 15, Pg F-5
54. ↑ URBN, 2006 10-K, Item 7, Pg 25
55. ↑ URBN, 2006 10-K, Item 7, Pg 20