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    Ahead of the Bell: Analyst downgrades Abercrombie

    Associated Press – Mon, Jan 9, 2012

    NEW YORK (AP) — Teen clothing retailers had a difficult holiday season, and Abercrombie & Fitch was no exception, an analyst said Monday as he lowered his rating on the chain to "Hold" from "Buy" and cut earnings estimates on the company.

    Abercrombie & Fitch marked down its clothing heavily during the holidays, and that will likely hurt its gross margin, said Brean Murray Carret & Co. analyst Eric Beder. Gross margin is the amount of every dollar in revenue that the company actually keeps.

    "(The) domestic teen market was, to put it mildly, a mess, for the holiday season," Beder wrote in a note to investors, adding that the company's Abercrombie and Hollister stores were "among the worst discounting offenders" with markdowns of as much as 50 percent and price cuts on key items.

    The discounting and high cotton costs will also hurt the New Albany, Ohio-based company's operating margin, he said.

    In addition, broader economic trends in two of Abercrombie & Fitch's biggest international markets, Canada and the United Kingdom, were "grim," Beder said, inviting "deep skepticism" about the company's international growth.

    He cut his earnings estimate for the quarter ending in January to $1.15 per share from $1.32 per share. Analysts polled by FactSet expect earnings of $1.58 per share.

    For the year ending in January 2013, he cut his forecast to $4 per share from $4.25 per share, below the company's guidance of $4.75 per share. Analysts polled by FactSet are expecting earnings of $4.26 per share.

     

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