Market nods to Abercrombie & Fitch turnaround plan

ANALYSIS_ Analysts and investors alike are backing Abercrombie & Fitch's efforts to regain its place as the market's spoilt child. Barely a week after the teen apparel brand presented its turnaround plan, Credit Suisse upgraded the stock and their outlook for the retailer,

with A&F's shares cashing out on that in Wall Street.

Abercrombie & Fitch (ANF) earnings are seen turning around, helped by more competitive pricing as well as tighter cost and inventory controls, as analysts following the stock have repeatedly pointed out over the past days.

However, Abercrombie posted a 34 percent drop in earnings per share or EPS in the fourth quarter in comparison with last year's same period, hence being this the company's third straight quarterly fall in EPS.

On a separate note and in a clear nod to the company's U-turn roadmap, Credit Suisse analyst Christian Buss upgraded the teen apparel retailer's stock rating to 'outperform' from 'neutral' and raised his price target from 36 to 52 dollars a piece.

Explaining his analysis, Buss noted that Abercrombie's Q4 2014 earnings per share of 1.34 dollars topped expectations on much lower than anticipated expenses. "The big news, however, is that the company is finally addressing a premium pricing strategy that has exacerbated challenging underlying demand conditions," he added in a note issued Tuesday.

Still, Buss lists several reasons for his upgrade and increase in his stock price target.

"We expect a more price-competitive strategy to lead to a return to positive earnings momentum when combined with: 1) Aggressive cost controls; 2) Continued emphasis on appropriate square footage reduction in the US; 3) Accelerated investments in e-commerce; 4) Tighter control of inventory; and 5) Renewed emphasis on return of cash to shareholders," said the analyst, as reported 'Investor's Business Daily'.

Abercrombie shares rose 5 percent on the stock market Tuesday to a 39.49 dollars close and becoming one of the bigger movers in Wall Street.

In a report published Tuesday, Credit Suisse noted that "Abercrombie & Fitch Co. reported 4Q13 EPS upside of 1.34 dollars, versus our 0.96 dollars and consensus for 1.03 dollar on much lower than anticipated SG&A expense". The big news however, is that the company is finally addressing a premium pricing strategy that has exacerbated challenging underlying demand conditions.

In a recent earnings report, CEO at A&F called 2013 "a challenging year" for the clothing brand. It is worthy a note that the retailer's stock has shed more than 30 percent over the course of last year. Nonetheless the future seems brighter for the company, with the stock up by more than 12 percent year-to-date.

While the sales and profit results were mixed -- beating Wall Street estimates on a non-GAAP basis, but behind on a GAAP measure -- the company announced a 150 million dollars share repurchase program and a stronger than expected 2014 outlook, according to data gathered by 'Forbes'.

In this sense, Abercrombie & Fitch reported adjusted non-GAAP net income of 104.3 million dollars for the quarter.

On the topic of 2014, Jeffries added, "there is much work ahead of us, but we are encouraged by the progress we are making as we continue to aggressively execute against our long-range plan objectives, which we believe will generate meaningful improvements in our business, and create significant value for shareholders."

A&F swaps local growth for international expansion

Abercrombie & Fitch Co. will continue to expand overseas, especially in China, even as its US store network shrinks.

The New Albany-based retailer expects to open 16 stores in foreign markets this year, with domestic development limited to outlet stores. Meanwhile, it expects to close 60 to 70 US stores as their leases expire. It has closed 220 US stores since 2010, culling under performers from its portfolio.

Of Abercrombie's international openings, seven are planned for China, including a flagship Abercrombie & Fitch in Shanghai. The company has seven stores in that nation.

"Overall, our stores in China posted a 35 percent increase in comparable-store sales for the year," CEO Michael Jeffries told securities analysts recently.

He said Hollister's two stores in Japan are performing well, generating sales that are double the company's expectation, and the company is considering accelerating growth of the brand in the country. The higher-priced Abercrombie & Fitch brand was struggling a few years ago in Japan.