NEW YORK (CNN/Money) - Abercrombie & Fitch is known mainly for being a controversial seller of casual clothes. Who could forget its semi-pornographic catalogs?
But there's another "C' word Wall Street is using to describe the retailer: "comeback." The stock is already up 51 percent year-to-date after a long sales slump last year.
Still, Wall Street's interest in Abercrombie is about as fickle as the fashions it sells. So far in 2004, it has posted a few positive sales surprises. As analysts speculate about Abercrombie's turnaround, is now the time for investors to add some preppy power to their portfolio? We take a look in CNN/Money's biweekly feature, "Buy what you know."
Aber 'crummy no more:
Abercrombie had a pretty lousy 2003. About the only thing titillating investors was probably its A&F Quarterly catalog.
Early this year, the retailer finally snapped an 11-month streak of same store sales declines, fueled mainly by a pick up in demand for its men's clothing and stronger sales at its less expensive Hollister division.
But more importantly for Wall Street, the nation's fickle teens gave Abercrombie a big thumbs up in a recent Piper Jaffray survey, voting it their best place to shop for a third year in a row.
Fashionably late to the party:
Despite its sales woes, Abercrombie has stubbornly stuck to its premium pricing policy.
This is good news as long as sales continue to tick higher. If Abercrombie isn't shaken by the whimsical winds of fashion, the stock could get a nice bump.
But given the juicy run-up this year, much of Wall Street's newfound enthusiasm with Abercrombie may already be priced into the shares. Although Abercrombie trades at a discount to its two closest rivals on a price to earnings basis, there's another little wrinkle to watch out for -- shares sport a price-to-sales ratio that's a bit more pricey than its two main peers.
If the shirt fits, wear it:
Abercrombie's business remains relatively strong. The company has some of the best profit margins in its group, maintains very lean operations and has grown earnings for 47 consecutive quarters.
But investors have already given the company their vote of confidence. Analysts say they're optimistic that Abercrombie is slowly getting back on track but now it has to prove that it can maintain the sales momentum.
|
