Susquehanna Reaffirms a 'Positive' Rating on Abercrombie & Fitch (ANF), Raises Price Target

June 18, 2009 10:06 AM EDT

Susquehanna reaffirms a 'Positive' rating on Abercrombie & Fitch (NYSE: ANF), raises price target to $36.

Susquehanna analyst says, "ANF announced the long-awaited decision to close its RUEHL division, a 29-store chain and eCommerce operation, by the end of 2009. RUEHL was developed to target men and women "post-grad," or when the shopper graduates from Abercrombie & Fitch; however, the brand has been a drag on earnings since inception in 2004, which has been further exacerbated by the weak macroeconomic environment...In conjunction with the RUEHL closure, ANF announced the amendment of its credit facility to exclude $61 mln of the $65 mln of additional pre-tax charges from the calculation of its minimum coverage and maximum leverage ratio covenants, and has agreed to reduce its available credit to $350 from $450 mln...For 2010, incorporating an estimated offsetting impact of potential residual charges and higher facility fees and interest expense, coupled with the benefit of the RUEHL closure, we are adding $0.20 to our EPS estimate to $2.00. We view ANF's decision to close RUEHL as a positive given the division's weak operating performance and drag on overall results. Importantly, eliminating the division allows management to more clearly focus on growth opportunities, including international and flagship locations for the Abercrombie and Fitch, Abercrombie and Hollister brands."

Abercrombie & Fitch Co. (A&F), through its subsidiaries, is a specialty retailer that operates stores and Websites.

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