I do see the issue of Abercrombie not stocking XL and XXL sizes in women’s clothing as somewhat troublesome. This implies the company does not want “overweight” women wearing its brand.
However, it can be difficult to find a niche for differentiation in the apparel industry, and this is what Abercrombie & Fitch Co. (NYSE:ANF) is trying to do. In the aforementioned 2006 interview with CEO Jeffries, he noted that companies get into trouble by trying to target everybody, including young, old, fat and skinny, saying that you then “become totally vanilla…you don’t alienate anybody, but you don’t excite anybody, either.”
Abercrombie & Fitch Co. (NYSE:ANF) hopes to drive future growth via new brands and store expansion. This includes the pursuit of international growth opportunities in Canada, the U.K., Europe and Asia; expecting to open five flagship, four Gilly Hicks, and 31 Hollister stores in fiscal 2013.
The comps
Guess?, Inc. (NYSE:GES) is a specialty retailer of casual apparel, accessories and footwear for young men and women between the ages of 15 and 25. The company was up as much as 8% in a day last week after reporting May-ended quarterly results that showed EPS of $0.14, down from $0.30 in the first quarter last year. However, the $0.14 managed to top analyst expectations of $0.08.
The Buckle, Inc. (NYSE:BKE) is another contemporary apparel company, with a market leading position in premium denim. However, an expansion into activewear and footwear should help the company capture more share.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. American Eagle managed to post EPS of $0.18, compared to $0.22 for the same period last year, on the back of 5% lower comp sales. Some of American Eagle’s initiatives for the future include investing in a new distribution center. As well, American Eagle recently acquired six former licensed stores in China.
Hedgie moves
Heading into the second quarter there were a total of 23 hedge funds long American Eagle, a 23% decrease from the first quarter. Small-cap king Chuck Royce of Royce & Associates had the biggest position in the stock, close to $210 million. Behind Royce was billionaire Jim Simons of Renaissance Technologies, with a $44 million position (see what Simons is buying).
Meanwhile, our headline company, Abercrombie & Fitch Co. (NYSE:ANF), had a total of 33 hedge funds long the stock at the end of the first quarter. Billionaire Steve Cohen and SAC Capital hold the most valuable position in the stock, worth $105 million (check out Cohen’s latest moves).
The hedge fund interest in both Guess and Buckle is minimal, with the small-cap investing king Chuck Royce’s Royce & Associates being the top hedge fund owner by shares in both companies (check out Royce’s portfolio).
By the numbers
Abercrombie trades near the bottom of the industry on a forward P/E basis.
| Abercrombie | Guess | Buckle | American Eagle | |
|---|---|---|---|---|
| Forward P/E | 12.3 | 13.8 | 14.4 | 11.7 |
But what’s more intriguing is that when you couple the expected growth in EPS with its valuation, Abercrombie is by far the best buy in the industry.
| Abercrombie | Guess | Buckle | American Eagle | |
|---|---|---|---|---|
| PEG ratio | 0.9 | 1.6 | 2.0 | 1.5 |
Don’t be fooled
Markets over react all the time. Although Abercrombie & Fitch Co. (NYSE:ANF)’s marketing practices and CEO comments are questionable at best, the retailer is still an impressive growth story.
Meanwhile, I’m not a big fan of the other retailers given there’s little differentiation. The real value in Abercrombie is the fact that it remains undervalued. Another part of what helps with the downside is the stock’s 1.6% dividend yield.
The article Can This Apparel Retailer Fatten Your Portfolio? originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Guess? and The Buckle. The Motley Fool owns shares of Guess? and The Buckle. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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