Troubled Teens (A Retailer Reality Show)
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The teen retailer space may be the most difficult sector to figure out. If you know a teenager can you claim to understand what they want when they go shopping? Can you extrapolate that to millions of teenagers? No, I didn’t think so. You could do your own unofficial channel checks at the mall and see which stores are busy, but I caution you to bring a teen with you; otherwise you may be viewed as creepy. Or you could meticulously chart out the ads in Seventeen magazine or Glamour. You still won’t know what teens are going to buy.
Who’s Not Hot
Witness what happened to Abercrombie & Fitch Co. (NYSE: ANF) when it warned that the second half of 2012 same store sales would be disappointing with reduced traffic. The stock plunged 15% overnight. It isn’t hard to see where things went wrong here as it runs two main brands of stores, the prepster Abercrombie & Fitch stores (with prep school tuition like prices) and the more casual beachy Hollister stores which sell their merchandise at lower price points. Abercrombie & Fitch is also having problems with Europe like many other companies, but analysts are crying ‘poor execution’ and with the stock at three year lows no one is saying it’s a value play yet, even with a 2.10% yield. It still has a P/E of 24.42 with this downbeat guidance. As the teens say,“Facepalm” (another version of Fail).
Aeropostale Inc (NYSE: ARO) slid an astonishing 32.75% after warning before their August 16 earnings release that they would just break even in Q2 below guidance of $0.03-$0.05 per share and analysts’ expectation of $0.06. They also warned the second half would see a 10% drop in sales. Maybe even teens are finally feeling the economy’s cold fingers and shying away from the priciest retailers. With no yield and a P/E at 16.77 and a 10% short interest, pressure could continue on this name.
Who’s On Fire
But American Eagle Outfitters , Inc (NYSE: AEO) only dropped 2.16% on the troubling news from its competitors. Its chart is a thing of beauty and the company since last September has given its shareholders a double and a yield of 2.10%. Its forward P/E is 13.81 and it has no debt. The shorts aren’t as willing to pressure this one at a 3.80% share of the float. What is it doing that the others aren’t? All of these should be benefiting from the drop in cotton prices, and the National Retail Federation call for a 30% rise in teen apparel spending this back-to-school season. I wish I could tell you that it was some fashion specific merchandise. I did ask some fashion forward teens and all I could get out of them was American Eagle is,”cooler” and “less preppy.” This is the kind of definitive analysis you can get from teens. But they are obviously right.
And Gap Inc (NYSE: GPS) today hit a 52 week high of $33.69 with a 12.75% rise in the stock price after July’s same store sales rose 10% surprising analysts. Their Old Navy division’s (inexpensive versions of Gap merchandise) sales were up 12%. This one I think I can explain as Gap appeals to the entire family, not just teens, so in a way it’s comparable, and then again it’s not. Whatever. Also with Old Navy’s sales being up more than Gap stores it’s plain that teens and their families are looking for bargains. Gap has a 1.70% yield and a 20.40 P/E. Gap also has Banana Republic, Piperlime and the Athleta brand (which competes with Lululemon). Gap Inc runs 3,200 stores as well as catalog and e-commerce sites in 90 countries. The company reports August 16 and, like American Eagle, has doubled since September 11.
Who To Buy
If you feel you must buy a retailer, Gap is probably the best bet as it is the least exposed to the vagaries of teen fashion but I personally think that the teen targeted retailers are so volatile and faddish that only those with the constitution of a teenager should buy these stocks. Otherwise just say, “meh” and move on.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.