Analysis of Abercrombie

Company: Abercrombie

Business: Fashion retail with accessories for men, women and kids under the Abercrombie & Fitch, Abercrombie kids, Hollister and Gilly Hicks brands. Hollister I have already mentioned when looking into attractive stores/shops.

Active: They have 1151 stores in a few markets which means they are less than half the size of H&M. The benefit with that means that there is definitely more room for growth. The main market is the US with 912 stores and only 139 outside which is than mainly in Europe.

P/E: 17.8

 
This American company has a P/E of almost 18 which is much lower than Inditex and H&M. The P/B is however much, much better with only 2.3 and this gives a more realistic value for Grahams formula of 41... which is still too high. The earnings per sale is a bad 5% the giant Inditex had 15% and H&M had 14% so here Abercrombie is very poorly situated. The book to debt is also fully ok with 1.6. The growth during the last five years has been around 5%. What is interesting here is that the amount of stores have been the same or even decreased. They have started to focus the business a bit more and are expanding the brands that are hopefully making the biggest profit in the future. Either way the growth then gives according to Lynch and Graham a motivated P/E of 16 to 18 which means that the company is today valued "correct". They are paying a very low dividend of 1.3% which is only 23% of the earnings which means they have room to increase it... however they have kept it fixed at 0.7 $ per share for the last five years.

Conclusion: Seems to be a company that are currently in a slimming process. For that reason the dividends have been kept fixed and the earnings to sale is also very low. I think the company has a good future ahead of them because their Hollister stores especially is creating a new shopping experience and leads to few but expensive sales. I would keep an eye on them to see if they would manage to increase that E/S as well as one sees that the stores are increasing because then the restructuring will most likely be finished. Today I would not buy it.