Shop Talk

Retailers, consumers and prices

Check Out Line: Abercrombie half-full or half-empty?

June 1, 2009

ABERCROMBIE&FITCH/Check out Abercrombie & Fitch shares getting upgraded by one stock analyst and downgraded by another in the same day.

Friedman Billings Ramsey analyst Adrienne Tennant upgraded Abercrombie shares to “outperform” as she expects the company’s change of heart regarding discounts should stem market share losses.

“We believe that stabilizing market share losses is the first step in the turnaround process,” Tennant wrote in a research note. “Therefore, although our analysis suggests ongoing margin contraction for the next few quarters, we are willing to be early in order to see if this new approach to price points will bear fruit.

“If it is proven that the sales improvement is short-lived, or if management chooses to return to a full-price stance in the near-term, we might reassess our opinion,” she said. 

In the meantime, she said recent clearance sales were luring shoppers.

At the same time, Brean Murray Carret analyst Eric Beder downgraded the shares from “buy” to ”hold” since Abercrombie shares reached his target price of $30 per share.

“Although we believe there could be further upside in the future as the company returns to prominence and the potential to achieve improved margins becomes clearer, we believe in the short term Abercrombie & Fitch will remain somewhat challenged on the top and bottom lines,” Beder wrote in his note.

Beder added that with the company’s shares now trading at 15 times 2011 earnings estimates, he believes “the risk/reward has tilted.”

We’ll see how shoppers feel about Abercrombie when it reports May sales on Thursday.

Also in the basket:

U.S. consumer spending eases, income surges

Starbucks Pushing Landlords for 25% cut in cafe rents (Bloomberg)

Wendy’s seeking amendment to issue debt

(Photo: Reuters)

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