American Eagle meets expectations in Q4, but comps see huge decline

I like how CEO Jim O'Donnell didn't want the market to think that he was blaming all of his company's woes on the nasty recession. Indeed, he stressed that the chain's performance could be better, and that a review of the quality of American Eagle's brands is called for. He needs to reposition his inventory so that it better reflects what his consumers want. Of course, that's easier said than done.

How do you deal with a fickle demographic? That's what makes it so difficult when talking about retailers like this. You never know when a mall entity is going to happen upon a new fad or, if it is in possession of a hot portfolio, when the fad is going to wear off.

And then there's the problem of the recession. In better times, one might look at American Eagle's current stock price and interpret it as a value. But, being that we're in an all-bets-are-off bear market, I don't think we can count on the chain's low stock price as being indicative of higher prices to come. It's a few bucks, roughly speaking, above its 52-week low as of Wednesday's close, but I can't say that I think it's a solid buy here and now.

Look, the market has had a couple good days. And American Eagle's stock has been, relatively speaking, performing well this year. At the time of this writing, American Eagle's shares were up well over 6% for the one-month timeframe. Is this proof that better times are yet to come for this retailer? It might be; but it also might be just the noise of the markets.

I don't trust many stocks these days. I think American Eagle could revisit its 52-week low. I believe the retail environment will continue to suffer. I therefore wouldn't buy the stock until I see even more bullish price action from both the stock itself and the markets in general. Consumer sentiment is going to follow the market, so if the latter doesn't improve, then I believe fashion retailers remain a risk.

Disclosure: I don't own any company mentioned; positions can change without notice.