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Tickers in this Article: ANF, WMT, TGT, GPS
There is a vast amount of promise for the retail space as the economy improves. However, not every the stock in this exciting space will rise with vigor. Be particularly wary of trendy stores that are known for selling pricey merchandise. With that in mind, let's take a look at Abercrombie & Fitch (NYSE:ANF) on the heels of a recent research report from Caris & Co where the analyst reportedly lowered the estimate for Q4 from 97 to 81 cents.

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Why Is A Not So Great Fit
Abercrombie does carry fashionable merchandise, has survived through tough times and a good number of younger people, despite the economic situation, continue to shop the stores with a smile. However, Abercrombie's major flaw is that some of its merchandise is quite expensive to purchase especially for a younger crowd that isn't always flush with cash.

Because the economy on Main Street may take some time to recover in full, some individuals that aren't loyal to ANF may seek out deals elsewhere, perhaps at Gap (NYSE:GPS) or at some of the popular discounters like Target (NYSE:TGT).

Next year ANF is expected to earn $1.73. Even if it were to hit that number, it wouldn't be anything that great. Abercrombie trades at about 18.8 times that estimate, which isn't much of a bargain at all. I'd much rather see a multiple in the mid-teens. The estimate for next year has come down over the last month from $1.81 to $1.73. I would be much more attracted to a company whose estimates have been rising with vigor. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Also, after fourth quarter results are released, the focus in retail will soon turn to the first quarter, and the estimate that analysts are expecting doesn't look so white hot. In fact, the estimate for Q1 is a loss of 12 cents. I question how many fence sitting investors that number might draw in if it's achieved.

Finally, I think the Caris report may put off some investors that have a decent paper gain.

Other Plays Worth Consideration

Gap was mentioned above and it trades around 12.5 times next year's estimate. Target, whose stock trades at more than $50, is at just below 14 times next year's estimate. Other discount retailers such as Wal-Mart (NYSE:WMT) are worth a look, as they seem to be favorites of cost sensitive shoppers in 2010.

The Bottom Line
The earnings estimates for Abercrombie & Fitch next year aren't that impressive. Also, the Caris report could have an impact on would-be investors and current investors that have a profit on paper. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

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