Stock Presentation:
Abercrombie & Fitch
Martin Perrier
July 18, 2013
SECTOR SUMMARY
2
Martin Perrier
1/9/2014
Consumer Discretionary:
Definition
Retailing
Media
Consumer Services
Consumer Durables & Apparel
Automobiles & Components
Martin Perrier
•
•
•
•
•
1/9/2014
• Companies selling non-essential goods and services from
various industries:
• Very cyclical sector, performing much better in a thriving
economy (unlike Consumer Staples).
3
Martin Perrier
1/9/2014
Sector performance
 Key element:
 Systematically outperforming the benchmark over the past five years
(higher gains, lower losses).
 Economic, financial and multiples analysis encouraging towards
future performance.
4
Sector size
Market Cap of $3.5T
82 constituents
Weight in S&P
Weight in SIM portfolio
Financials
Health Care
2.80%
3.30%
Consumer Discretionary
17.80%
16.60%
3.30%
Energy
Consumer Staples
10.20%
12.80%
10.50%
2.00%
1.71%
12.10%
14.14%
Industrials
Utilities
10.60%
7.88%
17.38%
3.97%
Materials
Martin Perrier
1/9/2014
Information Technology
12.20%
13.57%
14.18%
12.96%
Telecommunication
Services
 Key element: Sector overweighted in the SIM portfolio by 0.86%
5
Martin Perrier
1/9/2014
CD stocks in the SIM portfolio
6
1/9/2014
Martin Perrier
ABERCROMBIE AND FITCH
7
Abercrombie and Fitch:
overview
Financial Data (TTM)
Revenue
$4.43B
Revenue Growth
6.50%
Gross Margin
63.7%
Operating Margin
8.73%
Earnings Per Share
3.08$
Price to Earnings
16.20
Market Data
Market Capitalization
Shares Outstanding
Dividend Yield
Dividend
Beta
52 Week Price Range
Trailing 3 years peak
1/9/2014
New birth in the early 1990s
International fashion retailer
Target: 7-25 year old
Presence in the US, Canada, Europe and Asia
$3.94B
Martin Perrier
•
•
•
•
78.32M
1.6%
0.70$
1.8
28.64$ - 55.23$
$75.77 (2011)
8
Abercrombie and Fitch
Abercrombie Kids
Hollister
Gilly Hicks
Martin Perrier
•
•
•
•
1/9/2014
4 brands for different targets
9
Three reportable segments
• US stores
• Aggressive expansion
• Direct-to-Consumer
Martin Perrier
• International stores
1/9/2014
• Key element: stores consolidation
• Higher margins
10
• No large sizes
• Focused on “cool kids”
• Dangerous controversies
• Michael Jeffries, emlematic CEO
Martin Perrier
• Sex and nudity at the core of the marketing strategy, in-store
experience
• Exclusionary policy
1/9/2014
Brand image
11
Consumer spending increasing with the business cycle
Strategy towards better profitability and expansion
Increasing ROE
Safe quick and current ratios
Martin Perrier
•
•
•
•
1/9/2014
Investment thesis
12
Risks
• Internal risks
• Sales growth
• Brand image
Martin Perrier
• Economic
• International barriers
1/9/2014
• External risks
13
Target price and
recommendation
• Rather conservative approach for the DCF
• $59.42
• Weighted target price:
• $62.49
• For a 24.4% upside with a current price of $50.23
Martin Perrier
• Multiples analysis
1/9/2014
• $63.80
• RECOMMENDATION: BUY!
14
WHAT TO SELL THEN?
15
Martin Perrier
1/9/2014
Stocks to keep
• Dollar general
Martin Perrier
• Comcast
• DirecTV
1/9/2014
• Media industry
16
Martin Perrier
• Impressive performance over the past 12 months (+50%)
• Stock partially driven by emotion and the company’s
popularity
• Overvalued
1/9/2014
Sell: Starbucks
17
Martin Perrier
1/9/2014
Sell: Starbucks
18
Ford Motors
Martin Perrier
1/9/2014
• High Volatility
19
Sell: Ford Motors
2010-12
2011-12
2012-12
TTM
19
16.82
16.14
15.96
Operating Margin
5.16
5.1
4.69
4.54
EBT Margin
5.54
6.37
5.75
5.67
2010-12
2011-12
2012-12
TTM
Net Margin %
5.09
14.83
4.22
4.27
Return on Assets %
3.65
11.78
3.07
3.12
Return on Equity %
—
281.62
36.58
34.39
Gross Margin
Margins % of Sales
Martin Perrier
Margins % of Sales
1/9/2014
• Decreasing margins and profitability
20
Martin Perrier
1/9/2014
Thank you.
21