Specialty Retailers Soar on Earnings

by Alyssa Oursler | November 28, 2012 1:49 pm

To put it simply, it’s a damn good day to be in specialty retail.

Stocks of big names across the sector are moving upwards on some good — and not-so-good — earnings news.

We’ll start with the good. Teen apparel retailer American Eagle Outfitters (NYSE:AEO[1]) came out with an impressive third-quarter report this morning, featuring a double-digit gain in same-store sales, a 50% surge in profits and a raised full-year outlook, thanks to a “record” Thanksgiving weekend.

Now, the company expects earnings from continuing operations to be between $1.38 and $1.40 per share, up from a prior range of $1.33 and $1.36 per share and better than analyst estimates.

Shares soared more than 8% by mid-morning as a result.

Of course, that gain is nothing compared to the double-digit boost Express (NYSE:EXPR[2]) got soon after its report (although gains later slowed to around 8%). The good news? Well … not much of that. In the most recent quarter, overall sales fell 4%, same-store sales dipped 5% and net income came in at 20 cents per share — down from 37 cents per share last year.

Then again, that still beat analyst expectations, as did the company’s lowered full-year forecast. Plus, on the conference call, executives claimed to have it all under control, saying:

“The third quarter was a very challenging one for our company. However, we believe we have identified the issues impacting our performance and have developed, and begun to execute, a plan to fix them. To that end, we re-balanced our sweater assortment, introduced entry price point fashion items in key categories, and began to set and communicate clearer pricing and promotional strategies for our customers.”

I find it hard to believe a better assortment of wool tops is really what has investors feeling bullish. Instead, I suspect it might have something to do with spirit of holiday bargain-hunting. Express shares, which are in the red more than 27% year-to-date after today’s gains, are trading at a mere 8 times trailing and 9 times forward earnings, while most competitors sit in the double digits.

Heck, American Eagle’s nearly 40% gains so far this year put its share price over $20 — 21 times trailing earnings and 14 times forward.

Plus, while analysts foresee more rough quarters ahead for Express — estimates are for 18% lower earnings next quarter — nearly 20% earnings growth is expected for the next five years, dwarfing American Eagle’s expected 14% in that time frame.

And Express has only 600 stores — far fewer than the 1,000-plus American Eagle has already shoved into malls everywhere. So, it has more room to grow. The company added eight new stores in the third quarter and plans to add 28 total in 2012. American Eagle, on the other hand, opened four new stores last quarter, but also closed four and plans to have fewer locations by year-end than it started with.

Throw in the fact that Express is moving forward with its men’s business, while American Eagle recently exited the kids’ business, and one starts to understand that investors who are jumping in now are looking past this holiday season.

Of course, they’re not overlooking this holiday season, either. Analyst predictions of 57% earnings growth in Q4 and 60% growth for full-year earnings for American Eagle are pretty mouth-watering as well — something the stock’s still-impressive jump today attests to.

But the retail cheer doesn’t end there. Shares of Ann Inc. (NYSE:ANN[3]) — the women’s retailer behind the Ann Taylor and LOFT brands — jumped aboard the gains-train after reporting a record EPS of 84 cents per share — 25% better than the same time last year.

Shares of PVH (NYSE:PVH[4]) — parent company of brands like Calvin Klein, Tommy Hilfiger, Izod, DKNY, Van Heusen, Bass and more — also got a solid 5% boost, bringing its year-to-date gains to an impressive 63%. The company reported a 24% jump in earnings per share and also raised its full-year outlook.

Even JCPenney (NYSE:JCP[5]) — the laughing stock of the retail world so far this year with share price losses of 50% — climbed 5% along with PVH because Penney’s new in-store shops feature PVH’s Izod brand.

If this trend is indeed sector-wide, apparel-makers Aeropostale (NYSE:ARO[6]) and Guess (NYSE:GES[7]) could also be set for a pop tomorrow following earnings reports after the bell today. In fact, both stocks are already moving up — possibly in anticipation of such a result — along with the rest of the sector, with 5% and 1% gains midday, respectively.

Between the bargain share price of Express and raised outlooks for the rest, you can forget about Christmas shopping at these stores for now. Today, investors are rushing to snatch up the stores themselves.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

Endnotes:
  1. AEO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AEO
  2. EXPR: http://studio-5.financialcontent.com/investplace/quote?Symbol=EXPR
  3. ANN: http://studio-5.financialcontent.com/investplace/quote?Symbol=ANN
  4. PVH: http://studio-5.financialcontent.com/investplace/quote?Symbol=PVH
  5. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  6. ARO: http://studio-5.financialcontent.com/investplace/quote?Symbol=ARO
  7. GES: http://studio-5.financialcontent.com/investplace/quote?Symbol=GES

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