Wachovia upgraded Abercrombie & Fitch (ANF) and Gap (GPS) outperform.
Analyst Joseph Teklits says compelling spring fashions for women should allow the specialty retail business to be stable, and he says men's business is now improving. He notes despite the worst comparisons yet, Abercrombie was able to squeeze out earnings per share growth -- thanks largely to sharply improved merchandise margins at its Hollister and Abercrombie concepts.
Teklits thinks retailers' new luxury strategies could boost the base business over time. He sees new design talent at Gap's Banana Republic stores, and thinks retailers' merchandise will evolve to include premium and quasi-luxury price points in key areas. He also sees updated marketing to include print ads in national magazines, and efforts to avoid coupons.
For Abercrombie, Teklits sees a $2.21 fiscal 2005 earnings per share (Jan.) estimate.