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Abercrombie & Fitch Company (ANF - Analyst Report) – one of the world’s leading specialty retailers of premium, high-quality casual apparel for men and women – remains on our Neutral list with a target price of $48.00. Moreover, the company has a Zacks Rank #3 (Hold).

Why Reiterate?

We remain impressed by the company’s robust quarterly results and impressive fiscal 2013 outlook; however, its continued weak comparable-store sales performances make us cautious.

The fourth quarter fiscal 2012 earnings of $2.21 per share at Abercrombie exhibited a stark improvement of over 97% from the comparable year-ago quarter as well as the Zacks Consensus Estimate of $1.93. The year-over-year increase was primarily driven a strong top-line growth along with improved margins.

Looking at the earnings surprise history, the company has beaten the Zacks Consensus Estimates 11 times in the past 14 quarters. The average positive surprise in the trailing 14 quarters comes to 28.4%.

Looking ahead, the company expects its fiscal 2013 earnings to increase in the range of 4%–7% to $3.35–$3.45 per share compared with the fiscal 2012 earnings of $3.22. Currently, the Zacks Consensus Estimate stands at $3.49 per share, which is above the company’s guidance range.

Apart from strong fourth-quarter results, Abercrombie’s growth story looks compelling. We believe that management’s focus on expanding global operations and improving cash flows, while maintaining a healthy balance sheet, bode well for future growth.

On the flip side, the company’s comps performance is showing declining trend and now for the past 4 consecutive quarters these remained negative. Moreover, the company is projecting a decline in comps in the range of high-single-digit during the first quarter of fiscal 2013. Therefore, considering this downward trend, we remain apprehensive about the company’s future comparable store sales performances.

Further, Abercrombie operates in a competitive environment and strives to maintain its market share, actively competing with numerous manufacturers and distributors of apparel and related products. The company primarily competes on the basis of brand recognition, fashion, price, service, store location and quality. Failure to offer high-quality differentiated products at a competitive price may hamper Abercrombie’s market share, and thereby it’s top and bottom-line performances.

Other Stocks Worth Considering

Other stocks worth considering in the apparel retail industry are New York & Company Inc. (NWY - Snapshot Report), Stein Mart Inc. and Urban Outfitters Inc.(URBN - Analyst Report). All these companies hold Rank #2 (Buy).

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