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URL:  http://boards.fool.com/anf-aeos-bke-and-psun-12664210.aspx

Subject:  ANF, AEOS, BKE, and PSUN Date:  6/1/2000  2:56 PM
Author:  rclosch Number:  105 of 135

Abercrombie & Fitch (ANF), American Eagle Outfitters
(AEOS), Buckle (BKE), and Pacific Sunwear (PSUN),
are four Small retailers with a lot in common. There
are all small Cap stocks that target basically the
same customers. They operate primarily in Regional
Malls and target younger consumers, Men and Women 
between the ages of 16-34.


They are all profitable, growing revenues rapidly and
with the exception of Pacific Sun have large cash 
reserves. My guess is that their growth is coming out
of the revenue of the large department stores, that
young shoppers have grown used to shopping at mall
specialty stores and now prefer them to large 
department stores.


Abercrombie & Fitch, and American Eagle Outfitters
sell private label Merchandise and Buckle and Pacific 
Sunwear selling a mix of name brands and private 
label. PSUN = 64% name brands, and BKE sells 85% name
brands.


I would very interested in the opinion of the posters
 on this board. Particularly those that have
 experience shopping at one or more of these stores.
 Specifically the answers to the following questions.


1. Which of these stores do you like the best?
2. Do you prefer buying close at specialty store or
 department store
3. Do you prefer brand name merchandize or the value
 presented by private brands
4. How many of these Different stores can be in the 
same regional mall and still Make a profit
5. Do you think that Buckle with its high percent of
 name brands competes directly with ANF and AEOS, 
which sell only their own label?


I compared the financials tables of these four 
companies and then threw in the Gap (GPS) as a basis
of comparison to a large successful competitor.
 

Some General comments,
 

A. Market Capitalization

All four companies are small Cap and selling pretty 
cheap in terms of price to sales or PE ratios.


	Market 	Sales   Sales   PE   
       	Cap             /Price
AEOS	$796	$832	 .96	9.1
ANF	$860	$1,042	 .83	5.9
BKE	$269	$375	 .72	8.2
PSUN	$646	$436	 1.48	17.8
GPS	$29,379	$11,635	 2.53	26.3




B. Cash

AEOS, ANF, and BKE, have a lot of cash, particularly
when compared to their big brother, Gap. none of the
companies except Gap have any debt. Buckle has 
'very conservative balance sheet(Current Ratio =4.09).
 

	Cash   Est Cash  Current  Est Cash
               Flow 00   Ratio    Avail. 2000
AEOS	$168 	$102	 2.97	 $271
ANF	$193 	$177	 2.18	 $370
BKE	$82	$47	 4.09	 $128
PSUN	$32	$50	 2.83	 $82
GPS	$450	$1,563	 1.25	 $2,013


C. Store Growth 2000

This table shows estimate of cash available  from 1999
balance sheet  and cash flow for 2000. It also shows
an estimate of the amount needed  to fund store 
expansion in 2000. The last column attempts to 
estimate the percent of available cash that will be 
needed to fund the store  expansion. Again Buckle's 
expansion is very conservative and Gap is pushing 
their expansion as fast as they can. Trying to keep 
their earnings expansion at a level that will justify 
a high PE for the stock.

 
	Stores 	New 	Cash 	  % Cash 
        1999    Stores  Required  Commited
AEOS	466	90	$118	  43.5%
ANF	250	90	$187	  50.4%
BKE	260	28	$20	  15.4%
PSUN	450	125	$56	  68.5%
GPS	3018	600+	$1682	  83.6%

D. Store Size

This table shows the average square feet per store,
the sale per square foot and the total gross square 
feet leased by the chain.


	Sales/   Sales/ Total SQ.FT.    Ave.SQ. 
        SQ.FT.   Store  /Chain          /Store
AEOS	$451	$1,785	2,039,380	4376
ANF	$512	$4,550	2,171,400	8686
BKE	$334	$1,581	1,124,251	4324
PSUN	$398	$1,084	1,254,373	2787
GPS	$548	$3,855	23,976,100	7945

E. Lease Commitments
 
While these four companies have no debt, this is not 
quite as good as it sounds, All their stores are 
leased. The leases are usually for ten years and 
involve a total lease commitment that is shown in the 
second column in this table. A lease obligation has 
many of the same characteristics as debt(it comes
before shareholders in a bankruptcy). If lease 
obligations were viewed as debit, the balance sheets
of these companies would not be anywhere near as 
pretty as they are without it. The very conservative 
approach of buckle looks a lot more rational in this 
table.
 

Buckle Started in the Midwest and has many of its 
stores in smaller cities I suspect this explains why 
their Rent is a smaller  percent of sales. An 
interesting strategy, but hardly an original idea. Has 
anyone heard of Bentonville Arkansas?




 	Rent/	Lease   ShareH 	Equity
        Sales   pay     Equity  Percent
AEOS	9.2%	$403	$264	39.6%
ANF	7.7%	$520    $311	37.4%
BKE	5.6%	$175	$163	48.2%
PSUN	11.8%	$344	$161	32.0%
GPS	7.0%	$4,635	$2,233	32.5%


On surface at least three of these companies appear 
attractive, they are cheap, They have the ability to 
grow 20%+ per year and they generate enough cash from 
operations to fund that growth. Anytime you can find a 
company that can grow 20% with out using debt you have 
the potential for a big winner.


There are problems of coarse, otherwise the stocks 
would not be so cheap. Some Sort term problems are 
obvious. With the Fed raising rates it is now likely 
that retails sales are not going to be as strong next 
year as they are now. A lot of that has been 
discounted by the current correction. ANF and AEOS are 
adding stores like crazy in the face of the FED's 
tightening, this may prove  to have been a bad 
decision. If their cash flow goes below estimates they 
could have problems funding their expansion. Recent 
SSS sales at Buckle an ANF have been down. This could 
cause problems at ANF because it comes at a time when 
they are trying to expand their store base by 36% in 
one year.


PSUN has not corrected to the same extent that the 
other three stocks have and would appear over priced 
on that Basis.


GPS while the biggest and the most  expensive of the 
companies would appear to be the least attractive on 
the basis of the numbers above. This should come as no 
surprise, in a market that overvalues big cap and 
undervalues small cap. How long this overvaluation 
will continue  we have no way of knowing, but if you 
are buying stock to hold for the long term. It would 
seem reasonable to expect that the market will 
eventually revert to its mean, which says that over 
the long run small stocks will provide higher returns 
than big companies.


Stock buybacks can be an important indication of how 
management responds to interests of shareholders, but 
only if it represents the best use for available 
funds. The prices of these stocks are attractive, and 
buybacks would be an easy way to raise per share 
earning. Buckle announced a small share repurchase 
last year, but it would appear that have resources to 
pursue a more aggressive program. ANF announced a six 
million share buyback but with their aggressive 
expansion it is possible they would have trouble 
finding the cash to complete it. 


My favorite of the group is Buckle, but I already own 
it, so that makes me prejudiced. They are definitely 
have the most conservative management of the group, 
and that makes me more comfortable in the face current 
uncertainties. But ANF and AEOS have better numbers 
for the last two years, and despite near term problems 
either of these could eventually be the leader in this 
niche. One or maybe two of these stocks could turn out 
to be a ten bagger. They have been able to target a 
market that responds to their merchandising and take 
business away from bigger stores. There have been some 
great success stories in retailing Home Depot, Wal-
Mart, Costco, but for every winner there are probably 
ten losers. The next six months may go a long way in 
telling us which stores fall into which category.

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