Susquehanna Upgrades Abercrombie & Fitch (ANF) to Positive, Citing Cost Cuts & International

May 14, 2009 8:45 AM EDT

Susquehanna upgrades Abercrombie & Fitch (NYSE: ANF) from Neutral to Positive with a $33 price target, saying cost cuts and international provide upside.

The firm cited:

• we anticipate management will offer details of a comprehensive plan to right size the company's cost base under the assumption that domestic results will remain lackluster for the foreseeable future;
  
• iconic brand positioning provides a platform for accelerated international growth by way of flagship Abercrombie & Fitch stores and Hollister mall-based locations providing many years of profitable growth;
  
• by operating with a centralized business model, ANF is poised to drive accretive international expansion at a faster rate, which should bolster performance in 2010 and beyond;
  
• a significant focus on IT investments in preparation for ANF's international roll-out positions the company for a meaningful ROI, with the implementation of new systems to be completed by September 2009;
  
• solid financial position with 2008-end net cash of $422 mln, or $4.73 per share;
  
• free cash flow generation of $162 mln in 2009;
  
• with an increased focus on offering a higher content of fashion items, while right-sizing basic assortments, we see a higher probability ANF will catch or create a trend that could quickly reverse the course of the precipitous drop in domestic average store transactions

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• Susquehanna International Group of Companies

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