Abercrombie & Fitch

(ANF) - Get Report

is going back to prep school.

After seeing its sales and stock price slide this year, the once-sizzling retailer is trying to recapture its buzz among teens and college students with a more-tailored, less intentionally rumpled look ... and lower prices. The question is whether a return to its roots will appeal to enough teens to make up for the smaller price tag.

Investors, at least, are beginning to show some interest. After dipping as low as 8 in late May, Abercrombie's shares are now up to about 15. Granted, that's a long way from their 52-week high of 44, but it suggests there's some optimism that the company may be beginning to turn things around. (That optimism extends to insiders; COO Seth Johnson and a senior vice president, Leslee O'Neill, bought stock in May, while three other board members bought in May and June.)

Of Preps and Pimps

The new autumn line "is indicative of listening to the customer and returning to its more traditional look," says one East Coast money manager who was once short Abercrombie but has taken a modest long position on the strength of the early fall merchandise. "It's going back to basics."

For men, piles of faded T-shirts have been replaced by straightforward crewneck sweaters. Fitted sweaters dominate the women's area, paired with khakis and, of all throwbacks, grosgrain belts (can pink-and-green appliqued bags with wooden handles be far behind?). The Abercrombie logo has been reduced to a discreet side label from a glaring ventral billboard.

Newly fashionable?

From a fashion perspective, the question is whether Abercrombie's preppier, my-first-choice-is-Yale-but-I'll-stoop-to-Williams look will win back mall rats who may have moved on to more Euro-inspired looks, like the flat-front pants and slimmer silhouettes seen at chains like

Polo Ralph Lauren's

(RL) - Get Report

Club Monaco

, or the street-inspired style of labels like

Ecko

or Sean "Puffy" Combs'

Sean John

.

"Fashion now is in what we call a 'pimped-out time,'" says Irma Zandl, president of the

Zandl Group

, which tracks teen trends. Abercrombie needs to figure out where it fits in that environment, she says.

Women and Children

That's particularly an issue for Abercrombie's women's wear, always a weak spot for the company, even when its men's business was coming on like gangbusters. Women, it appears, don't always want to dress exactly like the dude down the hall, particularly when that look involves cargo pants so wrinkled they look like they've been wadded up and thrown in the back of the frat house closet for a week. "The women's business is very fashion-driven right now," says Rick Snyder, an analyst with

Morgan Keegan

. (He rates Abercrombie stock market perform, and his house hasn't done recent underwriting for the company.) "Yes, their stuff may look better -- but is it in fashion?"

And then there's the pricing. Abercrombie essentially priced itself out of the reach of many teens earlier this year, prompting many to go to similar styles from cheaper retailers. And its controversial catalogs, which occasionally resembled an artier version of "Men of the Ivy League" and likewise mentioned drinking games, didn't do much to persuade parents to ante up for the clothing.

Abercrombie's Lower Manhattan outlet

Barbara Miller, an analyst with

Goldman Sachs

, surveyed the new back-to-school catalog and compared it with last year's version. On average, similar items are 10% cheaper, Miller found. Women's items were priced an average of 12% lower; men's 8% lower. (She rates Abercrombie stock a market perform, and her firm hasn't done recent underwriting for the company.)

"Lowering the price point helps them to compete with companies like

American Eagle

(AEOS)

, who were taking market share," says Joe Stocke, portfolio manager and chief investment officer with

Stoneridge Investment Partners

, a longtime holder of Abercrombie shares. And if the economy continues to cool off, lower prices may look like a shrewd move.

Paper, Scissors

But remember: Cutting prices means cutting profit margins, and that, in turn, means Abercrombie will have to boost sales enough to make up for the drop. Perhaps that's why analysts are still relatively cautious; while some talk more optimistically, there have been few moves to increase bottom-line estimates.

U.S. Bancorp Piper Jaffray's

Jeffrey Klinefelter, for example, this month upgraded his rating on Abercrombie but cut his 2002 earnings estimate by 8 cents to reflect the skimpier margins.

It's a tricky balancing act Abercrombie is attempting. It wants to return to basics -- but stay unique enough to differentiate itself from all the other teen retailers out there. (In a previous story,

TheStreet.com

explored the big -- some say too big -- expansion plans that many retailers have for this year.) It hopes to focus management attention on primary Abercrombie & Fitch stores while also testing out a new concept, the West Coast-inspired

Hollister Co.

. And finally, Abercrombie wants to keep prices within a teen's budget without sacrificing earnings. All this in an environment that's not the most pleasant for retail stocks.

But Abercrombie's new look may be just the ticket the company needs to regain favor with high school and college students, and bulls argue that now -- with the stock trading at nine times prospective earnings -- is a good time to get in. "I don't think it's going to happen overnight," says the hedge fund manager. "But teen-agers still believe in the brand."