Buckle, Aeropostale Lead Specialty Earnings Pack

Teen retailing’s two top performers Thursday continued to outpace their specialty store competitors with double-digit increases in second-quarter sales and profits.

In reporting stellar quarterly results, The Buckle Inc. and Aéropostale Inc. pulled well ahead of the pack — and marginally above analysts’ consensus expectations — at a time when, confronted by weak mall traffic and indifferent consumers, most youth-focused chains would be content to simply tread water.

If there are questions about the two specialty retailers among investors, they stem from their ability to sustain such strong performances.

Aéropostale’s shares rose 0.6 percent to $35.88 before its results were released and were up another 0.3 percent in after-hours trading. However, following its morning release, Buckle’s shares dropped 3.9 percent to $26.84 despite a 12.2 percent increase in second-quarter net income, accompanied by a 13.6 percent gain in revenues and an 8.6 percent climb in comparable-store sales.

“There’s always the question: how long can this go on?” said Marie Driscoll, an equity analyst at Standard & Poor’s.

Investors appear worried that Buckle may be unable to sustain its remarkable comp performance — highlighted by a 20.6 percent gain last year. The Kearney, Neb.-based firm’s comps have been slipping since May, when the company reported a 13.4 percent jump, followed by a 9.4 rise in June and a 2.8 percent increase in July. In the third quarter, it’s up against a 23.7 percent comp increase, a number achieved despite the near meltdown in the credit markets that stopped consumer spending in its tracks in mid-September.

Despite the challenge of sustaining its recent successes, Driscoll said Buckle, which operates 401 stores in 41 states, has the potential to grow to 500 to 600 stores. “There are a lot of other regions where they can go,” she said.

For the quarter ended Aug. 1, Buckle posted net income of $25 million, or 54 cents a diluted share, 2 cents better than analysts expected, compared with profits of $22.3 million, or 48 cents, in the year-ago period. Revenue rose to $196.9 million from $169.8 million in the 2008 quarter, including a 39 percent jump in direct sales to $10.1 million.

Men’s, down to 40 percent of sales from 46.5 percent a year ago, declined about 2 percent as Buckle faced the anniversary of last year’s strong Ed Hardy launch. Women’s sales rose 27.5 percent and now account for 60 percent of net sales, up from 53.5 percent a year ago.

The critical denim category accounted for 35.5 percent of sales, up from 35 percent in last year’s quarter. Buckle, which lauds itself as a “denim destination,” increased its average denim price point in the men’s division by 10.4 percent to $87.60 and 10.9 percent to $89.30 in the women’s division.

Dennis Nelson, president and chief executive officer, said the addition of some higher-priced brands, such as Big Star, retailing from $120 to $150, had given it a degree of pricing elasticity.

“We’re just very product driven,” Nelson said during the company conference call. “We don’t decide on a price point or any specifics when we go into shopping the market or developing product.”

Nelson stressed the firm gears product and prices to individual markets. “It’s not necessarily an all-store basis at those price points,” he said, adding, “Our guest is looking for newness and willing to pay if they see the fit and value for that garment.”

Buckle’s numbers came without the heavy expense-cutting practiced by many other retailers. In the quarter, selling, general and administrative expenses increased 19.5 percent to $44.2 million from $37 million a year earlier.

The company has opened 15 stores this year and expects to open another five units.

Reporting after the market closed, Aéropostale posted an 83.3 percent jump in quarterly profits to $38.6 million, or 57 cents a share, versus $21.1 million, or 31 cents a share, in the year-ago quarter. Net sales increased 20.7 percent to $861 million from $713.5 million, as quarterly comps grew 12 percent. Analysts expected earnings per share of 56 cents on sales of $451.9 million. Based on the quarterly results, the company projected third-quarter EPS between 76 cents and 78 cents, in line with Wall Street’s expectations.

“Our business has never been stronger,” said Aéropostale chairman and ceo Julian Geiger on the company call. Crediting the chain’s mix of value and fashion, he added: “Results such as these are extraordinary at any time, but especially in contrast to this economic panorama.”

The company said its early reads on back-to-school were very strong, even in the West, hit hard by high unemployment and a difficult housing market.

“It pretty much boils down to having the right fashion at the right time,” said president and chief merchandising officer Mindy Meads, who added the retailer sees an opportunity to raise its prices, while still remaining lower priced than its competition.

Buckle and Aéropostale’s results stood in sharp contrast to other teen-oriented retailers reporting results. Pacific Sunwear of California Inc. not only swung to a second-quarter profit from a year-ago loss, but projected a third-quarter loss far worse than analysts expected.

The Anaheim, Calif.-based firm forecast a third-quarter loss of 16 cents to 23 cents a share, versus analysts’ initial estimates of a 9 cent loss. The projection assumes comp declines in the high teens to low 20s.

During the second quarter, PacSun’s net loss came to $14.2 million, or 22 cents a share, 1 cent better than analysts estimated. In last year’s quarter, net income amounted to $2.8 million, or 6 cents a share.

Net sales declined 22.4 percent, to $242.8 million from $312.7 million, and fell 24 percent on a comp basis.

“Clearly, we have a lot of work to do to stem our decline in sales and ultimately return to profitability,” said Gary Schoenfeld, the former ceo of Vans Inc., who succeeded Sally Frame Kasaks in that capacity at PacSun in June.

While the slowdown in consumer spending pushed Zumiez Inc. into the red in the second quarter, its tumble wasn’t as deep as Wall Street anticipated.

The Everett, Wash.-based teen retailer posted a loss of $3.1 million, or 10 cents a diluted share, in the three months against net income of $2.7 million, or 9 cents a share, in last year’s quarter. Excluding a charge of 3 cents a share related to a legal settlement, the firm’s loss was 7 cents a share, 6 cents better than analysts expected.

Net sales in the three months fell 7.7 percent to $85.2 million from $92.3 million a year ago. Selling, general and administrative expenses increased 14 percent to $29.9 million.

“Operationally, we have cut costs that make sense, but we are continuing to invest where we believe we’ll have the highest returns and most opportunity for future profitable growth,” said ceo Rick Brooks.

Looking ahead, the company said it expects EPS between 5 cents and 7 cents in the third quarter. Analysts had been expecting EPS of 7 cents, on average. It projected a comp decline in the mid- to low-teen range in the current period.

Both PacSun and Zumiez reported results after the close of the markets. PacSun’s shares rose 5.3 percent to $3.99 during the day, but fell as much as 9.8 percent in after-hours trading. Zumiez’s stock declined 1.8 percent to $12.28 during the day and was off less than 1 percent in the early stages of after-hours trading.