Comments on: Abercrombie Chooses Fewer, More Profitable Sales Over Lower Margin Bargain Bins http://www.peridotcapitalist.com/2008/12/abercrombie-chooses-fewer-more-profitable-sales-over-lower-margin-bargain-bins.html Chad Brand's stock market and investing blog Mon, 15 Mar 2010 23:24:23 -0600 http://wordpress.org/?v=2.8.5 hourly 1 By: Gil http://www.peridotcapitalist.com/2008/12/abercrombie-chooses-fewer-more-profitable-sales-over-lower-margin-bargain-bins.html/comment-page-1#comment-1271 Gil Wed, 24 Dec 2008 16:07:06 +0000 http://www.peridotcapitalist.com/?p=740#comment-1271 I think that this is a great strategy if they can keep inventories on the low side. They can loose money competing with low prices or make a good margin on less volume. Since spending is down, why not match it with lower inventory, volume, and costs? I think that this is a great strategy if they can keep inventories on the low side. They can loose money competing with low prices or make a good margin on less volume. Since spending is down, why not match it with lower inventory, volume, and costs?

]]> By: Jeff Partlow http://www.peridotcapitalist.com/2008/12/abercrombie-chooses-fewer-more-profitable-sales-over-lower-margin-bargain-bins.html/comment-page-1#comment-1135 Jeff Partlow Fri, 12 Dec 2008 20:58:08 +0000 http://www.peridotcapitalist.com/?p=740#comment-1135 ANF looks good by the measures you mentioned related to P/E ratios. They look fine by a few of other value measures s well (i.e. Cash & Equivalents, Debt, ROE, and P/Sales Ratio). However, there are two significantly troubling signs: (1) The degradation in free cash flow from +$112 million in 3rd qtr LY vs. the -$119 million in the most recent quarter; and (2) Reuters tracks 28 analysts that follow ANF and their average EPS estimates are $5.16 for 2008, $3.29 for 2009, and $2.15 for 2010. If so, this stock could be stuck in the $20s for at least two more years. I recommend you stay away from retailers until the housing inventory stats you track declines back to around the 7-8 months level and also that consumer confidence stops declining for two consecutive months. Then it is time to overweight retailers. ANF looks good by the measures you mentioned related to P/E ratios. They look fine by a few of other value measures s well (i.e. Cash & Equivalents, Debt, ROE, and P/Sales Ratio).
However, there are two significantly troubling signs:
(1) The degradation in free cash flow from +$112 million in 3rd qtr LY vs. the -$119 million in the most recent quarter; and (2) Reuters tracks 28 analysts that follow ANF and their average EPS estimates are $5.16 for 2008, $3.29 for 2009, and $2.15 for 2010. If so, this stock could be stuck in the $20s for at least two more years.

I recommend you stay away from retailers until the housing inventory stats you track declines back to around the 7-8 months level and also that consumer confidence stops declining for two consecutive months. Then it is time to overweight retailers.

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