Struggling teen retailers in need of encouraging news were able to provide some on Thursday, but better sales results often came at the expense of margins.
Four retailers in the troubled sector — Aéropostale Inc., American Eagle Outfitters Inc., Pacific Sunwear of California Inc. and Urban Outfitters Inc. — reported better-than-expected holiday results in trading updates. All but Urban Outfitters, which had no comment on the earnings implications of the results, raised guidance for the fourth quarter, although Aéropostale and PacSun’s revised guidance was for smaller losses in the period rather than increased profits.
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“Despite [better-than-expected] December and holiday comps, promotions drove the upside for most retailers,” said Janney Capital Markets analyst Adrienne Yih-Tennant. “However, inventory is in a much better position and we expect further improvement moving into 2015.”
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Perhaps the most challenged of the quartet, Aéropostale, reduced expectations for its fourth-quarter loss to a range of between 25 cents and 31 cents, better than previous guidance for a loss of between 37 cents and 44 cents, as it reported a decline of 9 percent in comparable sales for November and December. This was better than the 15 percent decline logged in last year’s comparable months.
Julian Geiger, chief executive officer, noted that the comp result was consistent with earlier guidance, while margins were higher than expected and inventories are expected to conclude the quarter in a “clean position.”
On a day when stocks continued to bounce back from losses earlier in the week, the New York-based chain rebounded far more than most, with shares up 23.9 percent to $2.80, their highest close since ending the day at $3.19 on Dec. 3.
PacSun’s adjusted fourth-quarter loss is expected to land between 11 cents and 12 cents a share, better than earlier guidance for a 12-cent to 17-cent loss. The firm provided comp results for December only, but the 9 percent gain for the month also moved the stock, sending shares up 21 percent to $2.77.
Gary Schoenfeld, ceo, said the results reflected a “strong sales performance in both men’s and women’s and an estimated 400 to 500 basis-point improvement in gross margins.”
Urban Outfitters’ two-month comp increase of 4 percent included signs of progress at its namesake brand, where comps rose 1 percent despite what ceo Richard Hayne called a “holiday environment in the fashion apparel industry [that] was more promotional than any I can recall.”
Wells Fargo Securities analyst Paul Lejuez noted that the sales improvement at the Urban Outfitters brand cut into margins, but he was encouraged by the sequential improvement in the brand’s performance throughout the quarter. Anthropologie’s comps were up 5 percent while also a function of response to promotions that eroded margins, particularly in women’s apparel.
“Still, Anthro’s margin is very high relative to historical levels,” he wrote in a research note.
Urban’s shares gained 3.7 percent to close at $36.69.
American Eagle has been the member of the Three As — which also include Abercrombie & Fitch Co. and Aéropostale — to receive the most upbeat estimates from analysts in recent weeks based on store checks during holiday. Its two-month comp decline was 2 percent, less than half the 4.4 percent fourth-quarter comp decline expected, on average, by analysts monitored by Retail Metrics Inc.
Additionally, Jay Schottenstein, interim ceo of the firm, said AEO achieved positive comp results in December, and expects “to close the quarter with inventories in good shape.”
Shares, which have moved markedly higher in recent weeks, eased 4.7 percent to close at $13.94.
Abercrombie has yet to provide an update on its holiday results.
The teen sector trading statements came as the small sample of stores still reporting monthly comps checked in with better results than expected. The overall increase, according to Thomson Reuters, was 5.1 percent, above the 3.9 percent gain expected by analysts. Among apparel retailers, the gain was 2.5 percent versus an expected median of 1.9 percent.
Concluding the day among the monthly reporters just after the close of the equity markets, Gap Inc. showed a 1 percent increase for December, just above the 0.7 percent estimate, as Old Navy continued to do the heavy lifting for the San Francisco-based retailer.
Old Navy compiled an 8 percent comp increase, more than twice the 3.4 percent gain expected, while both the Gap and Banana Republic brands missed estimates, with Gap down 5 percent versus an expected decline of 2.9 percent, and Banana, expected to be up 0.6 percent, finishing the month flat.
Glenn Murphy, who will hand over the reins as the company’s ceo to Art Peck next month, said the company was “pleased” with its 3 percent comp increase for November and December, led by Old Navy’s 12 percent gain for the two months.