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I write about all of the different things I want to accomplish here on this website and one of the important parts of analyses like these are to find out if they are truly working in the ‘real world’. In other words, what’s the use of writing something up if I don’t take the times to look back and find out how they worked out? And see if the stocks mentioned still belong on this website?
It is hard to believe, but this blog is approaching five years in operation, with the first post placed back on May 12, 2003! This is actually entry #1,797, and I am now up to reviewing entry #18! It looks like I have my work cut out for me :). Please always feel free to let me know what you think about these entries by leaving comments (not spam) on the blog and if you would like you can email me at bobsadviceforstocks@lycos.com with these same comments or questions.
On March 16, 2008, I reviewed entry #17, Krispy Kreme Doughnuts (KKD) . I wrote up KKD on May 28, 2003. On the same day, I briefly discussed Abercrombie & Fitch (ANF) . Let’s take a closer look at that entry and see how Abercrombie is holding up today in the difficult market environment we find ourselves and in the increasingly difficult retail market sector .
May 28, 2003
Abercrombie & Fitch Co. (ANF)
If any of you have teenagers, then you will know about ANF. The stock is having a nice day today and made the largest percentage gainers list. I do not own any shares of this nor does any member of my family.
ANF is currently (12:46 pm CST) trading at $29.07 up $1.33 or 4.79% on the day.
On May 13, ANF reported first quarter earnings ending May 3, 2003, rose 13% to $.26 from $.23 for the comparable period last year.
Looking at Morningstar, we find a 5 year growth from 0.5 billion to 0.8 in 1999, 1.0 in 2000, 1.2 in 2001, 1.4 in 2002 and $1.5 billion for the trailing twelve months. This company is cash-flow positive generating 200 million in the past 12 months…almost double the 107 million reported by Morningstar in 2002.
Another great pick for a beautiful late spring day.
Regards to my friends! Bob
This was only the first time I ‘reviewed’ Abercrombie; on June 2, 2005 I ‘revisited’ this stock on this blog when it was trading at $65.12. Abercrombie & Fitch (ANF) closed at $70.69 on April 11, 2008, for a gain of $41.62 or 143.2% since my post in 2003. I do not own any shares nor do I have any options on this stock.
Let’s take a closer look at Abercrombie today and see how it fits into our ’scheme of things’!
What exactly does this company do?
According to the Yahoo “Profile” on Abercrombie & Fitch (ANF) , the company
“…through its subsidiaries, operates as a specialty retailer of casual apparel for men, women, and kids. Its stores offer casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear, as well as personal care products and accessories under Abercrombie & Fitch, abercrombie, Hollister, and RUEHL brands.”
Is there any recent news on this company?
This past Friday, JPMorgan analyst Brian J. Tunick cut his rating on Abercrombie to “Neutral” from “Overweight” on a decrease in earnings for the year to $5.64/share from his prior outlook of $5.72/share.
ANF has not been immune to the lackluster retail sales environment and on Thursday, April 10, 2008, the company reported a decrease in same store sales of 10%. Total sales for the five week period ended April 5, 2008, actually declined a smaller % to $330.2 million from $331.2 million for the same period in 2007. However, this highlights the importance of same store sales evaluations which indicate how existing stores open both periods perform and removes the element of new store openings contributing sales.
How did they do in the latest quarter?
On February 15, 2008, Abercrombie & Fitch (ANF) reported 4th quarter 2007 results . For the quarter ended February 2, 2008, net sales increased 8% to $1.229 billion from $1.139 billion compared to the same period in 2007. Comparable store sales, however, declined 1% in the 2008 period.
Net income for the quarter increased 9% to $216.8 million compared to $198.2 million the prior year. Diluted income per share increased 12% to $2.40/share from $2.14/diluted share the prior year.
The company managed to beat expectations on earnings which were expected to come in at $2.36/share according to analysts polled by Thomson Financial. However, they missed expectations on revenue which were estimated to come in at $1.25 billion.
What about longer-term results?
The Morningstar.com “ 5-Yr Restated” financials has yet to reflect the slowing retail environment that is buffeting this stock. In other words the Morningstar.com page looks great!
The company has been steadily increasing sales from $1.7 billion in 2004 to $3.7 billion in 2008, increasing earnings from $2.06/share in 2004 to $5.20/share in 2008, and initiated a dividend of $.50/share in 2005, and increased it to $.70/share in 2008.
Outstanding shares are not only stable with 100 million shares reported in 2004, the company has been buying back shares along with the way with only 92 million shares outstanding in 2008.
Free cash flow is positive and has grown from $197 million in 2006 to $414 million in 2008.
The balance sheet appears solid with $118 million in cash and $1.02 billion in other current assets, easily covering the $543.1 million in current liabilities. The company has an additional $406.2 million in long-term liabilities reported on the Morningstar.com sheet. Calculating the current ratio , we can see that the ratio of 2.1 is quite adequate imho.
What about some valuation numbers?
Reviewing the Yahoo “Key Statistics” on Abercrombie, we can see that this is a large cap stock with a market capitalization of $6.09 billion. The trailing p/e is a reasonable 13.60 with a forward p/e (fye 02-Feb-10) estimated at 10.84. Thus the PEG ratio is quite reasonable at 0.78.
In terms of valuation, the Fidelity.com eresearch websit e notes that the Price/Sales ratio (TTM) is higher than its peers at 1.64, compared to the industry average of 0.84. However, Fidelity also notes that the company is also more profitable than its peers coming in with a Return on Equity (ROE) (TTM) figure of 32.25% compared to the industry average of 23.22%.
Finishing up with Yahoo, we find that there are 86.18 million shars outstanding with 77.95 million that float. As of 3/11/08, there were 7.37 million shares out short representing 8.70% or a short ratio of 3.2 trading days of volume, a relatively modest figure.
As I noted above, the company does pay a dividend of $.70/share yielding 0.7%. The dividend appears to be relatively secure with a payout ratio of only 13%. The last stock split was a 2:1 stock split paid out June 16, 1999.
What does the chart look like?
Looking at a ‘point & figure’ chart from StockCharts.com on ANF , we can see that the stock has nicely appreciated since January, 2003, when the stock was trading at $19.00/share until a peak at $85.00/share in October, 2007. The stock has been mostly trading sideways since then but although showing some weakness along with the entire sector, the price chart really hasn’t broken down as badly as some stocks.
Summary: What do I think about this stock today?
Well this stock has certainly had a nice ride since I picked it back in the early days of this blog in 2003. Looking today at this stock, there is definitely a ‘mixed picture’ on results. The latest quarter showed a declining same store sales although revenue and earnings climbed. This same store sales dip has accelerated into the first quarter with a (10)% decline in same store sales.
However, the longer-term picture appears intact, the company is reasonably valued with a p/e in the low teens and a PEG under 1.0. Their balance sheet is solid and they pay a secure dividend.
But I cannot ignore the overall retail environment. I have to ask myself whether I would continue to hold this stock in light of the deteriorating figures. Not knowing the extent of this economic slow down and very reluctant to predict, I have to conclude that
ABERCROMBIE & FITCH (ANF) IS RATED A SELL
That one really hurt. I like the performance of this pick and believe that after this economic downturn, the stock is likely to pick up once again. Watch for monthly sales figures, and when the stock starts doing better than expected it will be time to change our bias.
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$70.91 (04/16/08)
