FBR Capital Markets raised its price target on Abercrombie & Fitch Co. (ANF), a mall-based specialty retailer of casual sportswear apparel, following the company's third-quarter earnings results, which beat the Consensus. The brokerage also raised its earnings estimates for 2009 and 2010 to reflect the beat and increased international openings of its Hollister stores in 2010.
Analyst Adrienne Tennant noted that the company had posted an in-line October comparable store sales, which probably made investors concerned that the retailer was buying comp at the expense of margin. However, the company's third-quarter results showed less bad gross margin erosion and SG&A savings, and the brokerage believes that ANF is successfully flowing top-line improvement down the income statement.
Citing more international stores newly opened and planned by the company, FBR said it believes the new stores will add to the company's earnings, as higher margins are coming from international stores.
According to FBR, there are still heavy preopening lease expenses that may lead to increase in SG&A in 2010. ''As we are still concerned about any potential need to increase SG&A into 2010 and are looking for domestic stabilization, we remain sidelined on the name.''
The brokerage raised fiscal 2009 earnings estimate to $1.04 from $0.94 per share and 2010 estimate to $1.84 from $1.68 per share for the company. It also increased the price target to $39 from $34, which is 21.0 times the estimated 2010 EPS of $1.84.
ANF closed Friday's regular trade at $40.68, up $3.92 or 10.66%, on 13.62 million shares.
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