American Eagle Outfitters (NYSE: AEO), whose competitors at the mall include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), is part of a sector I'm not much of a fan of currently: retail. Just saying the word aloud makes it sound repulsive these days. Don't get me wrong, retail will come back (someday). For now, though, it's difficult to look at the numbers associated with the industry, especially the same-store sales.
Looking at American Eagle, I can see that its third quarter was, as expected, not too inspiring. Adjusted earnings per share dropped 33% to $0.30. Worse, comps plunged 7%. Last year at this time, comps increased 2%.
It's tough out there, folks, and it probably will get tougher. American Eagle, like every retailer out there, is facing a perplexing problem. What's the best way to get traffic through the door? Marketing and promotions. What do retailers have to focus on this Christmas season? Containment of costs. Margins are important, and management doesn't want them to deteriorate too badly. You can see the challenge. Plus, American Eagle can't really count on its target shopper. Young people are oftentimes fickle and ready to jump to some other business near the food court. Not a great position to be in.
This post is part of a series in which TheStockAdvisors.com asked financial experts to name their top stock pick if McCain or if Obama wins the election.
"Obama's tax plan would give greater relief to the lower and middle classes; one retailer that would benefit from this is American Eagle Outfitters (NYSE: AEO)," says John Reese, editor of Validea, which follows the investment criteria of "legendary" investors such as Warren Buffett and Peter Lynch.
"Consumers have had to tighten their wallets and purses because of the slowing economy and rising food and fuel prices. Breaks for average Americans would be welcome news for retailers, which have sputtered amid the downturn.
"In the event of a retail surge, this teen-focused Pittsburgh-based clothing chain should be at the head of the line.
"American Eagle gets approval from two of my Guru Strategies -- computer models that are each based on the published approach of a different Wall Street great. What's more, the two strategies that like the firm are modeled after two of the greatest gurus, Warren Buffett and Peter Lynch.
"My conservative Buffett-inspired model looks for stocks with a lengthy history of steadily increasing earnings, as well as a conservative balance sheet.
"Eagle has grown earnings per share in eight of the past ten years, with EPS rising from $0.25 to $1.82 in that time, meeting the first criterion. In addition, the firm has no long-term debt, which my Buffett model loves.
This post is part of a series in which TheStockAdvisors.com asked financial experts to name their top stock pick if McCain or if Obama wins the election.
Which stocks would benefit from a victory by either Senator John McCain or Senator Barack Obama? To help investors sort through the sectors and stocks best positioned to benefit in a post-election environment, we posed this question to some of the nation's leading financial newsletter advisors.
Importantly, this is not a partisan report; each participating advisor has provided a favorite stock for both candidates, focused not on political preferences but unbiased stock analysis. Below we feature those stocks and ETFs that the advisors believe will be the winners depending on which candidate prevails.
Over the weekend, I was looking around in the retail universe for potential bargains. Of course, where was I when Wal-Mart (NYSE: WMT) was at its lows? Oh well, can't dwell on the past, I guess.
I came across a stock I've looked at every so often -- American Eagle Outfitters (NYSE: AEO). Its 52-week low is an even $16 per share; the 52-week high is close to double that number. The closing price last Friday was $16.23. It doesn't take a rocket scientist to figure out that sales at the retailer probably haven't been doing too well in this weak economy -- yep, according to this Reuters piece, there was a bad double-digit drop in comps for the month of March. How bad? Try 12%. This led to a reduction for Q1 guidance. And, bingo, you got your weak stock.
Yet, American Eagle is still a decent mall brand, and its P/E ratio, according to AOL Finance, is pretty cheap at a value of about 9. The dividend yield is also worthy of note, as it is over 2%; that's higher than another stock I've been keeping my eye on, Target (NYSE: TGT). But there's a big difference between a Target and an American Eagle -- the latter is obviously more dependent on the whims of fashion trends. It's a different retailing model, catering to a specific demographic, and is thus potentially the riskier play. But as the market starts to discount an improving economy, as many theorize should happen overt the next several months, an American Eagle could rebound nicely. I'm not ready to buy shares yet, but I'll be watching this one.
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
Readers of this space know that one argument forwarded here is to avoid retail stocks during sluggish economic times, but there are exceptions, and American Eagle Outfitters is one.
American Eagle Outfitters (NYSE: AEO) is one of the largest specialty retailers, targeting teen/young adults, and offering all-American casual apparel, accessories and footwear.
Analysts like the fact that American Eagle has re-focused on its "bread and butter" market: the 15-25 year-old group, and eliminated sideline-demographic categories. The above should drive impressive 12-15% FY 2009 sales growth, accelerating from 10-12% sales growth in FY 2008.
Analysts also like AEO's improved merchandise flows, and regional assortments: look for sales to really impress in AEO's sunbelt stores in the quarters ahead. The Reuters FY 2008/FY 2009 EPS consensus estimates for AEO are $1.81 to $1.98.
"I don't go into denial about a bad investment; when I make a mistake, I'll take the loss and move on," says Jack Adamo, noting that the tendency for investors to wait to recover their capital can be "a recipe for disaster."
On the other hand, the editor of Insiders Plus notes, "If you still like an investment that declines, and have faith in your analysis, lower prices provide an opportunity for bigger potential profits. And that's how I feel about American Eagle Outfitters (NYSE:AEO)."
"The recent additional '25% off sale' for this retailing stock is a great buying opportunity. Not only is the stock selling at 46% below its 52-week high, it's selling at a P/E of 9 with expected growth in earnings of 12% next year.
"The growth rate is well below its historical average; so, analysts are expecting a slowdown, which is, obviously, priced into the stock. Even supposing results are softer than expected, one would be hard-pressed to lose money on a buy like this.
With weather forecasts predicting frigid conditions for this weekend's NFC championship game at Lambeau Field, here are two stocks that are sure to warm up the shirtless Packer fans.
China Water and Drinks (NASDAQ: CWDK) is China's leading supplier of bottled water. Obviously for football fans, this water will be used to make piping hot coffee to drink at the game. The company is growing very quickly, and while other high-flying Chinese stocks have gotten slam-dunked, CWDK is actually trading up 50% YTD.
Maybe the shirtless faithful should take a trip to the nearest mall and go shopping at American Eagle Outfitters (NYSE: AEO). American Eagle has gotten hit along with the rest of the retail sector, but the company sports a P/E of 10.4, a PEG of just 0.74, and a nice little dividend of 2.1%. With the expected economic pick-up in second half '08, retailers should benefit, and American Eagle is well poised to help investors profit as well.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/18/08.
Paul Pressler resigned today after a four-year reign at the helm of Gap Inc. (NYSE:GPS). The company has been losing market share to retailers like Abercrombie & Fitch Co. (NYSE:ANF) and American Eagle Outfitters (NASDAQ:AEOS) for years and, its same-store sales have been down in 29 of the last 31 months.
While Jim Cramer generally says to sell when a key executive resigns, this may be a clear exception. Pressler is being replaced by the son of the founders and Chairman of the Board, and there had been ongoing calls for new leadership. Pressler's resignation is not a surprise nor is it unwelcome. Shares of Gap gained over 3% in after-hours trading when the press release came out.
There has been speculation about a break-up of the company that owns Gap, Old Navy, and Banana Republic. New leadership may make that closer to becoming a reality.
The deals and general craziness of Black Friday have already been well-covered in this space, so I thought it might be interesting to turn your attention to the actual stock reactions. My intentions were simple enough (but aren't they always?): grab a list of retail stocks and calculate the returns from the close on Wednesday, November 22, through this morning. Sorting the list would give a quick (but early) overview of how the Street was reacting to the "day."
I have ample data manipulation tools at my disposal, so I figured this to be an easy task. What I didn't count on was not being able to find what I considered to be a satisfactory list of retail stocks. The lists I found were either too broad or too narrow. I wanted the usual suspects like Best Buy (NYSE:BBY), Wal-Mart Stores, Inc. (NYSE:WMT), and Gap (NYSE:GPS), while also picking up some of the smaller players like Bebe Stores (NASDAQ:BEBE) and Chico's FAS (NYSE:CHS). Additionally I wanted to capture some of the brands like Crocs (NASDAQ:CROX) and dELiA*s (NASDAQ:DLIA), while excluding consumer goods producers and fast food restaurants.
Unable to find a list that suited my (admittedly arbitrary) desires, I began to handpick names and compile a list of 72 stocks. The graph below shows the top and bottom performing stocks through noon today.
Blue Nile (NASDAQ:NILE), Pier One (NYSE:PIR), and Coldwater Creek (NASDAQ:CWTR) are the weakest stocks, while Lowe's (NYSE:LOW), American Eagle Outfitters (NASDAQ:AEOS), and Jo-Ann Stores (NYSE:JAS) are the strongest.
As you can infer from the graph, the bulk of the returns are flat to lower as two of the "best performing" stocks, Aeropostale (NYSE:ARO) and Limited Brands (NYSE:LTD), show a loss. In other words, buying just ahead of Black Friday doesn't seem like it would have been a good short-term trading strategy. Going forward though, I would expect to see some stocks distinguish themselves and separate from the pack. With my list now created (and saved!) it should be much easier to track. If there is interest in this, I can post periodic updates.
American Eagle Outfitters (NYSE: AEO), whose competitors at the mall include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), is part of a sector I'm not much of a fan of currently: retail. Just saying the word aloud makes it sound repulsive these days. Don't get me wrong, retail will come back (someday). For now, though, it's difficult to look at the numbers associated with the industry, especially the same-store sales.
With weather forecasts predicting frigid conditions for this weekend's NFC championship game at Lambeau Field, here are two stocks that are sure to warm up the shirtless Packer fans..gif){kind=logo}
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