Analysis of Abercrombie Fitch Report by 3one2 comAnalysts Daisy Suryo Gregory Nathan Pei Chun Shang and Jennifer Gold Investment Recommendation MARKET PERFORMER ANF NYSE 3 20 01 52 Week High 52 Week Low Beta 33 50 33 50 8 00 1 23 Revenue FY 2001 Market Capitalization Share Outstanding 1 237 60Mil 3 28Bil 98 80Mil Dividend Yield Institutional Holdings Avg Daily Trading Volume Book Value per Share Return on Equity Est 5 Yrs EPS Growth Rate Industry March 20 2001 EPS Forecast ANF FYE 1 31 2001A 2002E 2003E 2004E EPS 1 56 1 80 2 15 2 59 Ratios Firm Average of Competitors Forward P E 18 61 18 01 Forward PEG 0 94 1 06 median Forward P B 5 55 4 68 P S 2 67 1 32 Valuation Predictions ANF Actual Price 33 50 P E Valuation 32 41 PEG Valuation 38 01 P S Valuation 16 54 P B Valuation 28 29 EBO Abnormal Earnings Valuation 15 98 DCF Valuation 31 20 Performance ANF Trailing 13wk 26wk 52wk Actual 92 8 29 5 107 1 Relative to S P500 120 9 64 5 177 6 Relative to Competitors 95 0 70 0 91 0 0 80 95 of float 1 60Mil 4 24 49 33 20 00 Specialty Retail Recommend a Market Performer rating on Abercrombie Fitch s stock based on valuation analyses Strong brand equity allows new stores to generate sales quicker than most of its competitors Domestic and potential International expansion will be the driving force in its growth Significant growth potential via new stores under its abercrombie kids and Hollister Co names Increasing productivity by opening smaller stores to increase sales per avg gross square feet Difficult to grow revenues through increase in margins due to them being relatively high 23 23 compared to its competitors avg of 11 9 Same store sales has decreased significantly in the past two years negative growth in FY2001 along with a decrease in sales per average store in FY2001 Rating System BUY A strong purchase recommendation with above average long term growth potential MARKET OUTPERFORM A purchase recommendation that is expected to marginally outperform the return of the market MARKET PERFORMER A recommendation to maintain current positions with returns to match that of the market SELL A recommendation to sell the security or short the sec urity as it is expected to decrease in price in the medium term 1 Business Analysis Core Business Description Established in 1892 Abercrombie Fitch ANF was well known as a supplier of rugged high quality outdoor gear One hundred years later ANF was repositioned as a more fashionoriented apparel store targeting ages 18 through 22 In 1988 The Limited acquired ANF The company went public in October of 1996 followed by a spin off from The Limited in May of 1998 ANF introduced abercrombie kids in 1997 to target children ages 7 14 Finally starting in July 2000 ANF opened five Hollister Co stores targeting 14 18 year olds Currently ANF is in the business of purchasing distributing and selling men s women s and kids quality casual and classic American sportswear apparel The merchandise is sold in one of 350 ANF owned and operated retail stores throughout 37 States as well as through catalogs ANF also runs an e commerce website at www abercrombie com as well as a kids website at www abercrombiekids com ANF has a policy of maintaining sufficient quantities of inventory so that it can offer its customers a full selection of current merchandise It also concentrates on accomplishing a rapid turnover ANF faces a very seasonal sales pattern resulting in increased inventory during back to school and Christmas holiday selling times Risks Competitive pressures in the retail apparel industry market saturation ANF in mature stage of growth Less consumer spending in apparel due to slowing of economy Change in consumer preferences Missing the next trend Political financial instability in countries where goods are manufactured Challenge of international expansion Risk of rising interest rates Trade Restrictions Competitors Gap A global clothing retailer that runs over 3 650 stores mostly in the U S but also in Canada France Germany Japan and the UK Its flagship Gap stores offer a wide variety of men s and women s casual clothing The company s other chains include Banana Republic GapKids babyGap and its fastest growing Old Navy Each chain also has an online incarnation The Gap is adding GapBody intimate apparel stores and restaurants in flagship Old Navy stores American Eagle Once a purveyor of outdoor sports apparel and equipment American Eagle Outfitters AE has grown immensely in the past few years The retailer now sells collegiate style casual apparel and accessories shirts pants shorts sweaters skirts footwear belts and bags aimed at men and women ages 16 34 Virtually all the company s wares bear its privatelabel brand names American Eagle Outfitters and AE AE operates over 550 mall based stores in 47 states primarily east of the Rockies and Washington DC and is expanding The Limited The Limited is as much of a shopping mall mainstay as food courts and teenagers The retailer operates about 5 000 stores in the U S focusing mostly on clothing for women Its women s apparel stores include The Limited Express Lerner New York Lane Bryant which it is selling and Henri Bendel Its Structure stores to be renamed Express Men s offer men s clothing The Limited also owns 84 of Intimate Brands which operates Victoria s Secret Bath Body Works personal care product stores and White Barn Candle Co candles and fragrances In addition it has a 40 stake in Galyan s Trading Co sporting goods Gadzooks Gadzooks is a mall based specialty retailer of casual apparel and related accessories for young men and women principally between the ages of 14 and 18 Gadzooks experienced 20 of sales growth for the FYE 2 3 01 This results from the opening of new stores the introduction of the private label merchandise and operational improvements in existing stores In the year 2001 alone Gadzooks launched Decibel the company s newest private label for young men Candie s Junior Swimwear and Candie s Time Junior Watches The company operates 377 stores Pacific Sunwear Chain of retail stores that is primarily mall based specializing in retailing everyday casual apparel accessories and footwear designed to meet the needs of active teens and young adults The company also provides sales through online service In addition Gadzooks provides trade promotion through trip packages The company operates 471 retail stores 52 outlet stores and 82 demo stores for a total of 605 stores in 48 states and Puerto Rico Information taken