Oh Yea! Oh Yea! T-Shirt Time Is Over, But Is Abercrombie Worthy Of A Spot In Smush Landing?

If nothing else, Abercrombie & Fitch (NYSE: ANF) certainly knows how to drum up publicity.

On the same day the company reported much better than expected earnings, the company is taking a shot at "The Jersey Shore," just like the rest of America.

In the most absurd and hilarious press release of the day, Abercrombie & Fitch announced that it wants MTV's Jersey Shore cast member, Mike "The Situation" Sorrentino to stop wearing its clothes. An offer is also being made to Snooki, and the rest of the cast members as well.

In the press release, a spokesperson for Abercrombie & Fitch said:

"We are deeply concerned that Mr. Sorrentino`s association with our brand could cause significant damage to our image. We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans. We have therefore offered a substantial payment to Michael `The Situation` Sorrentino and the producers of MTV`s The Jersey Shore to have the character wear an alternate brand. We have also extended this offer to other members of the cast, and are urgently waiting a response."

While the potshot is likely to draw Abercrombie publicity, both negative and positive, the earnings release is more important. The Ohio-based company reported earnings of 35 cents per share on $916.8 million in revenues. Wall Street had been expecting earnings of 26 cents per share on $881.7 million in revenues.

Despite the earnings beat, the stock is down more than 5% after the company mentioned input costs rising in the future, which are going to pressure margins going forward. At last check, shares were trading at $66.38, down $4.64‎ in early Wednesday trading.

"We are pleased that our results for the quarter continued to reflect strong momentum, both in the US and Europe, resulting in a 71% increase in operating income for the quarter. Going forward, our focus remains very much on execution against our long-term strategy and roadmap objectives. Costing pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased. However, our strong top-line momentum and overall performance for the past several quarters give us confidence that we are well positioned to navigate through this environment."

It also announced it would be paying its quarterly dividend of 17.5 cents per share. It will be payable on September 13, 2011 to shareholders of record at the close of business on August 29, 2011.

With regards to its outlook for 2011, Abercrombie expects to open five flagship locations this year, including the one opened in Paris.

While the earnings beat is extremely impressive, the bigger concern is the rising input costs, particularly when cotton and other commodities have been dropping recently.

Over the past 52 weeks, shares have returned over 100%, far better than what the S&P 500 offered during the same time frame. The company is growing revenues at 21% year-over-year, which is particularly strong, especially in a fickle market like teen apparel. Shares are trading at 14 times 2012 earnings, and sport a 1% dividend yield.

Despite the concerns about the input costs coming in the next few quarters, Abercrombie & Fitch is poentially undervalued, and may be one "Situation" you may want to look at.

ACTION ITEMS:

Bullish:
Traders who believe that input costs are done going up for a while might want to consider the following trades:

• The company was particularly cautious on the conference call, but it could be a case of under promising and over delivering. If you believe, this today's hair cut may prove to be a good buying opportunity down the line.

Bearish:
Traders who believe that input costs are not done going up may consider alternate positions:

• Short Abercrombie, as well as its competitors. Names like American Eagle (NYSE: AEO) and Aeropostale (NYSE: ARO) may also say the same thing about costs when the companies report.
  
  

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