A Tale of Two Retailers

With the growing disconnect between personal consumption and consumer confidence, investors are paying close attention to any signs of a pullback in retailer spending.  A recent study shows that US retailers’ same-store sales fell short of analysts’ estimates.  Retailers such as Limited Brands (NYSE:LTD), Target (NYSE:TGT), and Saks Inc. (NYSE:SKS) missed out on Thursday’s rally, but the big loser of the day was Abercrombie & Fitch Co. (NYSE:ANF).

Abercrombie & Fitch Co., through its subsidiaries, operates as a specialty retailer of casual apparel for men, women, and kids.  On Thursday, shares plunged by as much as 22% after the retailer reported that sales slowed at flagship stores in Europe.  Furthermore, sales declined in Canada and Japan.  It was the largest intraday decline in the company in more than a decade.  Although US sales improved, investors were more concerned about international sales since that is where the growth has been in recent quarters.

In a good old fashion tale of two retailers, one company’s lost is another company’s gain.  Shares of Aeropostale, Inc. (NYSE:ARO) surged more than 20% on Thursday.  The teen  retailer announced that revenue at stores open at least a year decreased by 9% in the third quarter, but raised its predictions for third quarter earnings.  The company said it now expects to earn 27-28 cents per share, compared to 9-15 cents it forecasted in August.  Aeropostale also received an upgrade from Hold to Buy at KeyBanc.

Revenue at stores open at least a year is a popular strength measurement looked at by investors, because it removes the volatility from stores recently opened or closed.  Although it is a positive that Aeropostale increased guidance, the company does not fit our CHEAT SHEET investing framework, because we can not ignore the industry trend of slumping sales due to a battered consumer and high unemployment.  Investors looking to buy Aeropostale or Abercrombie & Fitch should proceed with extreme caution.

Competitors to Watch: Movado Group, Inc (NYSE:MOV), American Eagle Outfitters (NYSE:AEO), Urban Outfitters, Inc. (NASDAQ:URBN), The Gap Inc. (NYSE:GPS), Coach (NYSE:COH), Nordstrom (NYSE:JWN), J.C. Penney (NYSE:JCP), Ralph Lauren (NYSE:RL), The Wet Seal, Inc. (NASDAQ:WTSLA), Zumiez Inc. (NASDAQ:ZUMZ).

Further Reading: U.S. Retail Sales Roundup>>