Falling in Love With Abercrombie and Fitch (ANF)

It has nothing to do with the catalogues..so stop the thought. I haven't even seen a single ANF catalogue yet, since I hardly ever shop there. But I have seen the stores and young people love it.
All the negative publicity it's been receiving recently kind of got my attention. As usual, I love betting against the crowd--educated, odds-in-my-favor kind of bet.
Yes, ANF has had a protracted same-store sales decline, but I believe this has more to do with the economy and people looking for cheaper alternatives. ANF has refused to engage in the apparel industry price war, maintaining its prices, thus losing some market share.
But it is also using this down-time to expand.

Though Abercrombie has come under fire for its racy advertising, and some parents have reduced their kids Abercrombie budgets, this is not going to affect the underlying business in the long run. The company will make all the necessary adjustments, but continue to portray itself as a high-end purveyor of apparel for teens and young adults.

According to Teenage Research Unlimited, teens spent more than $170 billion in 2001 and 2002, up from $150 billion in 2000 and the trend is expected to continue, especially as Americans begin to feel richer with the economic rebound.

Looking at the numbers, the company generates good cash flow, has no long-term debt and has consistently increased its earnings over the years.
It enjoys a ROE of about 25% with 12.1% net margin, one of the best in its industry.
Do your own research and see how comfortable you are with the risks involved. I recommend a buy below $20/share.


Insights

Christopher and Banks (CBK)
I believe this company offers a good buying opportunity at its current price of about $18. I have been watching it for a while and it has dropped considerably below its high in the $30s around October due to not so good numbers recently.
But I consider it a good long-term buy, it is conservatively managed and is growing at a good pace. Over the past five years, Christopher & Banks has reported annual sales growth of 28% and earnings growth in excess of 50%. And tight controls on costs have allowed it to sustain a high operating margin--about 18%--one of the highest in the industry.
One disadvantage to CBK is its concentraton in malls which makes it subject to greater price constraints unlike stores like Kohls.
Also keep in mind that this company just recovered from bankruptcy protection in 1996, but I believe that is enough time to see how managers handle their business and so far, they have done a good job, keeping long-terms debts to minimum and maintaining a healthy cash flow. Check it out for yourself and see if you're comfortable with the risk level.

At the current price, I give it a buy.