Is Abercrombie an Exceptional Company?

A director at Deloitte Services LP and coauthor of The Three Rules: How Exceptional Companies Think, Michael Raynor joins the Fool to share his findings about what makes a company successful for the long haul.

In this video segment, taking Abercrombie & Fitch as an example, Michael describes how the study defines success over the course of a company's entire history, not just over the last few quarters, even in a volatile industry such as retail. The full version of the interview can be seen here.

A full transcript follows the video.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of the last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Brendan Byrnes: I wanted to ask you specifically about Abercrombie & Fitch (NYSE: ANF  ) , which you say is an exceptional company. I think this might surprise some people, especially when they see the recent comments of the CEO, taking the extra-large and extra-extra-large clothes off the shelf.

Also their earnings. They had fewer earnings last year than they did in, I think, the stretch from 2006 to 2009. Could you maybe go through the process that landed them on the list and the things that you evaluate with them?

Michael Raynor: Yeah. There are a couple of things worth pointing out. First of all, we're looking at company lifetime, so when I talk about Abercrombie & Fitch, we're talking about it from 1996 through to today.

The other thing is that the statistical methods that we use are actually pretty immune to the ups and downs of the market. We tend not to get too hung up on what's been happening not only in the last two or three quarters, but even the last two or three years.

That takes a little getting used to, especially in an industry like retail, where if I said to you, "You really have to understand the last 10 years in order to understand your performance," some people would look at me ... they'd kind of squint a bit. But we feel we have good reason for looking at it that way.

I guess the last thing to point out is that when it comes to the specific choices that get made, well, that's kind of why we play the game. The rules, we think are very helpful, but they're not a road map. They don't prescribe precisely what you need to do to be successful. They indicate which hard problem you should try and solve.

When we look at the Miracle Workers that stay there, they stay focused on those hard problems even if they have speed bumps or hiccups along the way.

Brendan: How do you think we extrapolate this forward? Obviously the data is backward-looking...

Michael: All data are.

Brendan: Right, so how do we ensure that the data... maybe a company was great in the past. How do we ensure that they stay great in the future?

Michael: Well, the hope is that's where the rules come in handy. They're a compass. They point. They say, "The great performance lies that way."

Companies that remain focused on moving in that direction, those are the companies that we feel will have the best chance of continuing or creating a run of exceptional performance.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of the last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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  • Report this Comment On June 26, 2013, at 10:30 AM, stuckinamobile wrote:

    There is only one thing to conclude after reading this article. Michael Raynor is stuck with alot of shares of Abercrombie and must be a paid pumper for the hedge funds that can not dump this damaged goods company. The market does not care about last quarter and certainly does not care about 3 or 10 years ago. It cares about today and the next quarter and today ANF is looking pretty bad, has an ugly clown as a CEO and is in trouble going forward as kids realize it is not cool to try to be Abrceombie cool.

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