3 Retailers That Should Gain on Aeropostale's Missteps

 |  About: Aeropostale, Inc. (ARO), Includes: ANF, BKE, BODY
by: Stephen Rosenman

Aeropostale (NYSE:ARO) dropped 24% on an earnings warning. Comparable store sales fell 14% for the quarter, the worst result among apparel retailers. Management guided EPS all the way down to two to three cents, including a six cent favorable dispute with a vendor. Quite a miss from the previous analyst consensus of 13 cents.

ARO stopped reporting monthly sales six months ago, leaving investors vulnerable to these unpleasant quarterly surprises. It's harder to evaluate with less information. This isn't the first time ARO has disappointed shareholders with a dismal "business update." Three months ago, ARO delivered another profit warning, sending the stock price that day down 20%. How many more of these "business updates" do investors need?

If ARO were still announcing monthly sales, perhaps investors could have seen the impending disaster earlier. Or you could have read my warnings here and here.

Not all teen apparel retailers are doing badly. ARO's lost sales are benefitting three competitors: the Buckle (NYSE:BKE), Body Central (OTCQB:BODY) and Abercrombie & Fitch (NYSE:ANF).

1. The Buckle increased its sales 12.6% and its comparable store sales 8.9% for the quarter. When the Buckle reported July comparable store sales of 6.8%, shares dropped because analysts expected an unrealistic 10%, presenting investors with a good entry point. Investors would be better served by BKE which is growing and gives both dividends and special dividends.

2. Body Central is poised to benefit from ARO's misfortune. It should steal share from ARO's vulnerable Southeast under belly. This is a young retailer is expanding quickly while delivering improving operating margins.

3. Abercrombie & Fitch preannounced that its upcoming quarter would be strong. It reported a 9% comparable store sales increase with quarterly revenue of $917 million, beating consensus.

The Buckle, Body Central, and Abercrombie & Fitch should gain on Aeropostale's missteps.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Disclosure: I am long BKE, OTCQB:BODY.