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How Aeropostale Defies Recession for Teens


The retailer is expected to post strong earnings growth.

If you want to feel as old as Methuselah, duck into an Aeropostale (ARO) store.

The company pitches "twisted prep" where "East Coast meets British prep school rocker." That may be a mystery (or horror) even to those who voted for the first time in the last election, but Aeropostale knows what teens aged 14 to 17 want.

The company has shown solid growth and might be a good way to buff up your portfolio.

"Competition in the teen sector of the retailing world is fierce with constant pricing pressure from competitors and a critical need to be fashion right," Adrienne Tennant and Simeon Siegel, analysts at FBR Capital Markets, say in a research report. "Having strong brand equity enables a retailer to price merchandise higher than commoditized retailers that compete solely on price. Aeropostale attempts to 'value price' its goods, offering solid quality, trend-right merchandise with a desirable brand name."

Aeropostale is scheduled to report third-quarter 2009 earnings after the market closes Wednesday. Analysts expect the company to report earnings of about $0.91 a share, compared with $0.63 for the same period a year ago. In October, the company increased its earnings guidance to $0.84 to $0.85 a share from $0.78 to $0.80.

The company's success in reaching kids aged 14 to 17 is also the greatest challenge to future earnings: Teens are fickle and one misstep will send customers to the competition, including American Eagle Outfitters (AEO), Abercrombie & Fitch (ANF), and Zumiez (ZUMZ). (See also: Why Are Investors Helping American Eagle Soar?)

Fickleness aside, kids in Aeropostale's target age group are growing both physically and emotionally. This is the company's sweet spot because kids routinely outgrow their duds and therefore must make another trip to the store. Better yet, even as families cut back during the recession, many parents will buy new clothes for their kids before spending a nickel on themselves.

Aeropostale is ready to scoop up the money. It operates about 900 stores in the United States, Puerto Rico, and Canada. The company's P.S. from Aeropostale stores are pitched for kids aged 7 to 12. The division also markets online at Such market segmentation gives the targeted demographic groups room to grow within the company's offerings.
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No positions in stocks mentioned.
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