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Ahead Of The Bell: Abercrombie & Fitch

The Associated Press

NEW YORK (AP) — Abercrombie & Fitch Co. could post better earnings in 2011, propelled by lean inventory, deals on rent, better merchandise and lower prices, an analyst said, upgrading the stock.

SunTrust Robinson Humphrey analyst Robin Murchison in a note to investors Thursday upgraded the teen-apparel retailer to "Buy" from "Neutral" and raised her earnings-per-share estimate for its fiscal 2011 year to $2.15 from $1.43. She kept her profit estimate for fiscal 2010, which ends in January, at $1.16 per share.

Analysts polled by Thomson Reuters expect, on average, earnings per share of $1.02 in 2010 and $1.54 in 2011.

Murchison said that Abercombie's shutdown of its Ruehl stores, to be complete by January 2010, will help profit margins in its 2011 fiscal year.

Abercrombie announced it was closing the Ruehl stores, aimed at older shoppers, on Wednesday.

Murchison also said that markdowns will be smaller as the recession eases, even as regular prices are set lower at its Hollister stores, which sell a surf-wear-inspired line.

While management has acknolwdged mistakes in clothing offerings, especially in women's dresses and knits, she said she expects "an uptick in the fashion quotient."

Abercrombie will also have an opportunity to renegotiate lower rents at 280 stores through 2011, and is "likely to play hardball," she said. Abercrombie is a mall-based store, and malls have been stricken by chain bankruptcies and are eager to prevent vacancies.

Murchison has a $34 price target on the stock. Thursday, shares rose 46 cents to $27.43 in premarket trading. Shares have traded between $13.66 and $69.17 in the past 12 months.