Earnings Preview: A Wary Eye on Abercrombie & Fitch

Abercrombie & Fitch ANF is scheduled to report fiscal third-quarter 2011 results Wednesday, November 16, before the opening bell. Shares recently sank on news that sales were sluggish overseas. And analysts are wary, as indicated by the falling EPS estimate for the most recent period. The consensus forecast calls for Abercrombie to report earnings of $0.71 per share, which would be a 21.1% increase from the same quarter of last year. But that EPS estimate was $0.77 just 30 days ago, and $0.82 some 90 days ago. Note though that analysts have underestimated per-share earnings results in the past five quarters -- by 14.3% in the second quarter. Analysts also expect the company to report that revenues increased 21.0% from a year ago to $1.1 billion. Looking ahead to the current quarter, revenues are anticipated to be 19.7% higher year over year. And for the full year, the forecast so far calls for revenues to be up 21.1%, with per-share earnings 32.8% higher than a year ago. The Company Abercrombie & Fitch is a specialty retailer of casual apparel and operates more than 1,000 stores in North America, Europe and Japan. Its brands include Abercrombie & Fitch, Hollister and Gilly Hicks. This S&P 500 component was founded in 1892, is headquartered in New Albany, Ohio, and currently has a market cap of $4.9 billion. During the three months that ended in October, the company announced plans for store openings in Paris, Madrid, Dusseldorf, Brussels and Singapore. It attributed better-than-expected second-quarter results to strong same-store sales and international sales. The company also garnered attention when it asked cast members of MTV reality show The Jersey Shore to stop wearing its brands. Performance Per-share earnings are expected to grow more than 20% over the next five years. The forward earnings multiple is less than the industry average P/E ratio, and the 1.0 PEG ratio is in line with the industry average. Abercrombie & Fitch has a dividend yield of 1.3%. The consensus recommendation of analysts is to buy the stock; only one analyst out of 35 surveyed forecasts it to underperform. Their mean price target is $76.12 per share, which is more than 24% higher than the current share price. Due to the sell-off in early November, the share price is more than 17% lower than a month ago and well below the 200-day moving average. But shares are still trading more than 25% higher than a year ago. Also because of the recent pullback, the stock has underperformed competitors such as Aeropostale ARO and the Gap GPS over the past six months. Action Items: Bullish: Investors interested in exchange traded funds invested in Abercrombie & Fitch might want to consider the following trades:

• SPDR S&P Retail XRT is more than 21% higher than a year ago.
• Rydex S&P Equal Weight Consumer Discretionary RCD is more than 12% higher than a year ago.
• First Trust Consumer Discretionary AlphaDEX FXD is more than 10% higher than a year ago.

Bearish: Traders may want to consider these alternative positions:

• Buckle BKE is about 48% higher than a year ago.
• Hot Topic HOTT is more than 29% higher than a year ago.

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