Fed, Teen Angst Drive Down Stocks

Investors concerned over behavior of Federal Reserve, back-to-school consumers.

Concerns about the back-to-school prospects of the teen sector and mall-based retailers in general drove retail stocks down Tuesday in the aftermath of American Eagle Outfitters Inc.’s sharp cut in earnings guidance.

This story first appeared in the August 7, 2013 issue of WWD.  Subscribe Today.

AEO said late Monday that its quarterly earnings, originally expected to be in the range of 19 to 21 cents a diluted share, will come in at about 10 cents when the Pittsburgh-based specialty retailer reports results on Aug. 21. Revenues, it said, were down 2 percent with comparable sales down 7 percent.

The revision pulled AEO’s shares down 12 percent, to $17.57, in Tuesday’s trading session, and contributed to a 0.4 percent slump in the S&P 500 Retailing Industry Group. As expected, the profit warning also cut into the share prices of other teen retailers, including Pacific Sunwear of California Inc., down 5.6 percent to $4.25; Abercrombie & Fitch Co., down 4.1 percent to $49.57; Zumiez Inc., down 3.5 percent to $27.76; The Buckle Inc., down 3.2 percent to $54.82; Urban Outfitters Inc., down 2.8 percent to $51.69, and Aéropostale Inc., down 2.3 percent to $14.60.

“Mall traffic was down and I think just about everybody had a hard time in July,” said Rebecca Duval, analyst at BlueFin Research Partners in Boston. “A lot of people were clearing spring merchandise, which was pretty summery to begin with, and that didn’t give consumers much incentive to come back.”

She praised Aéropostale for improving its assortment and said that AEO was also upgrading, with special attention to the women’s offering that was most responsible for the store’s disappointing showing in the second quarter.

“I expect better things from AEO in the third quarter and great things from Aéropostale,” she said.

Brean Capital analyst Eric Beder downgraded AEO to “hold” from “buy” following the guidance revision and noted that the start of the third quarter has been “equally as challenging,” with promotional pressures at AEO and other teen retailers greater than in previous b-t-s campaigns.

“We believe that the entire teen world…was under material inventory pressures that were exacerbated by colder weather and a limited pent-up demand as the quarter progressed,” he wrote in a research note.

Stifel Nicolaus analyst Richard Jaffe stuck with his “buy” rating on AEO, asserting that the third-quarter floor set was “on trend” and improved versus its “ill-received” summer offering.