FORECASTING THE FUTURE PERFORMANCE OF ABERCROMBIE & FITCH
Clothing retailer Abercrombie & Fitch enjoyed phenomenal success in the late 1990s. Between 1996 and
2000, its sales grew almost fourfold—from $335 million to more than $1 2 billion—and its stock price soared by more than 500%. However, in 2002, its growth rate had begun to slow down and Abercrombie had a hard time meeting its quarterly earnings targets. As a result, the stock price in late 2002 was about half of what it was 3 years earlier. Abercrombie’s struggles resulted from increased competition, a luggish economy, and the challenges of staying ahead of the fashion curve. From late 2002 until November 2007, the company’s stock rebounded strongly; however, its stock price declined during the 2008 economic downturn. Its stock price rebounded until late October 2011 when it began a downward trend again. Its stock price has started to rise again (June 2013), but questions remain about the firm’s long-term growth prospects. However, the company has been actively repurchasing shares indicating that management believes its shares are undervalued. The company continues to steadily expand stores abroad while closing underperforming domestic stores. Given the questions about Abercrombie’s future growth rate, analysts have focused on the company’s earnings reports. Thomson ONE provides a convenient and detailed summary of the company’s recent earnings history along with a summary of analysts’ earnings forecasts. To access this information, begin by entering the company’s ticker symbol, ANF, on Thomson ONE’s main screen and then selecting “GO.” You will then see an overview of the company’s recent performance. After reviewing the company overview, you should click on “Estimates.” Click on “View Forecasts” (in the EPS Estimate Forecasts box in the middle of your screen) to see details of the EPS summary report. On both of these screens, you will find a wide range of information about the company’s past and projected earnings.
1. What are the mean and median forecasts for Abercrombie’s earnings per share over the next fiscal year?
2. Based on analysts’ forecasts, what is the expected long-term growth rate in earnings?
3. Have analysts made any significant changes to their forecasted earnings for Abercrombie & Fitch in the past few months? Explain.
4. Historically, have Abercrombie’s reported earnings generally met, exceeded, or fallen short of analysts’ forecasted earnings?
5. How has Abercrombie’s stock performed this year relative to the S&P 500?