Abercrombie & Fitch Company (ANF)

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. Sales at its London flagship have continued to increase despite large sales decreases in the United States. The company also plans to expand upon its performance in London by opening another store in Milan.

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.

A&F's sex appeal is what is needed within the company, and the executives know that. People are looking for a fight with this company, but the stock should not be affected. They know who their market is (younger people) and they know what appeals to them. That is why they are perusing this marketing track, and it is a smart move. The only bad press, is no press.

ANF’s sales in the past few months have been encouraging, especially for year-end sales. For November, comparable store sales increased 23% and 22% for A&F stores and Hollister stores respectively compared to the year before. For December, comparable store sales increased 13% and 17% respectively for A&F and Hollister stores. Overall, in face of an improvement in the economic environment and increase in consumer spending to pre-recession levels, ANF could see increased sales as consumers upgrade from value based to brand based retailers, such as ANF. This, in addition to ANF’s refusal to usually discount its prices, is expected to increase comparable store sales and revenue per square foot.

A&F recently released their quarter results, and with net sales increasing 17%, the company shows a promising trend. If A&F can continue this growth in the quarters to come, this is definitely a stock worth owning. Moreover, the total revenue of the company increased 15% so far this year.

ANF's international store openings have driven profit increases even under recessionary pressure, and major analysts from GS and CS believe that the new store openings in international markets have the potential to double earnings in 2010. The company's flagship stores will also command a higher premium as tourism rebounds.

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).

A&F doesn't compete with the other stores in the mall. It offers more stylish and higher quality merchandise than its so-called "competitors." A&F is able to sustain a competitive advantage in the tough retail sector by creating the trends and setting the standards. Furthermore, A&F offers a quality and name brand that remain competitive with higher-end labels while pricing its merchandise more attractively.