Friday, March 5, 2010

Abercrombie & Fitch Co Hasselhoff Lives...And So Does $ANF

■Yet Another Retail Lesson from David Hasselhoff: In our February 12 note titled What David Hasselhoff Can Teach Us About… Retail Investing, we compared the former Knight Rider/Baywatch star’s career progression to ANF, pointing out that a person/brand can be popular in other parts of the world despite losing favor in the U.S. If it is possible that Hasselhoff’s career could teach us anything else, it’s that just when you thought your star had completely faded in the U.S., along comes America’s Got Talent, the fairly popular TV show for which Hasselhoff is a judge. Hasselhoff lives!

■ For ANF, similar to Hasselhoff, although the positive comp in the relatively small month of Feb is not proof that it has reclaimed its former domestic status, it is an indication that the brand is not dead.

■Feb Comps Reinforce that It’s the Price, Not the Brands. In Feb, ANF posted a sprising +5% comp, above consensus of (6)%. The month was helped by the continuation of the Winter clearance event through wk 2 (vs. no sale LY), although sales of full price Spring product were also good. While we don’t typically get excited about comps driven by promotions, ANF’s ability to drive customers to the store with promotions shows ANF’s traffic issues are more related to pricing than the total loss of brand cache.

■Catalysts: The next catalyst for ANF will be its March sales results, to be released on April 8th. We are looking for comps to be +5-7%.

■We Reiterate Our Outperform Rating: Although the stock was up 15% today, we believe the risk/reward continues to be attractive, especially now that a turnaround in the U.S. business is plausible in F10. If this is truly the beginning of improving trends in the U.S., EPS numbers will prove to be way too low (with every comp pt adding $0.12 to F10 EPS). While we hesitate to put too much weight into a Feb comp result, for those that believed the brand was dead in the U.S. regardless of what they

Hasselhoff Lives...And So Does ANF

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