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Aeropostale, Buckle Shine in Dreary Retail Sector


A few positive reports don't mean much for the sector, but these brands are consistently strong.

I warned last week that the retail sector is miles away from experiencing actual recovery.

A basic interpretation of retail sales reports alluded to my conclusion, but sometimes it takes an official report to wake Wall Street up to reality. Today's consumer confidence numbers did just that.

While the market welcomed the US Census Bureau's reported 0.3% growth in retail sales, consumer sentiment slipped and the consensus among Americans in regards to economic recovery and employment prospects remains quite negative.

Thus, like I've cautioned before, investors need to be weary about jumping on the retail bandwagon just because of a few positive reports.

That being said, despite the status quo state of the consumer who remains unwilling to spend, two retailers -- Buckle (BKE) and Aeropostale (ARO) did stand out among their peers this week.

As I said a few weeks ago when discussing earnings from Fossil (FOSL) and Sketchers (SKX), true, solid performance is hard to come by these days in the retail and consumer goods sectors. Many companies positing positive numbers are doing so after having two rough years of negative growth.

But both Buckle and Aeropostale have remained strong competitors throughout this recession -- Buckle due to superior management and controlled growth strategies and Aeropostale by playing its "trade down" card.

Neither company's success was a surprise given their ability to seemingly sidestep the recession. But both earnings reports offered a bright spot for the retail sector.

The Buckle

Positing 7.8% annual comps, the retailer isn't churning out the ultra-impressive and consistent double-digit comps it did in 2008. However, taking into consideration that Buckle never really felt the impact of the recession and generated 22% more earnings than last year on 13.4% sales growth, the company remains a true winner in its industry.

With such an experienced executive team (as well as district management team) and nearly 45% of inside ownership, Buckle is effectively managed. Having a unique business model combining higher-end brands with cheaper in-house labels, I look for this company to continue to generate solid profits even as the recession persists as its merchandise selection appeals to consumers looking to cut back in some areas and splurge in others.

Selling at less than 13 times its 2009 earnings and offering a 2.3% dividend yield, Buckle is a retailer to play.


Stealing market share from more expensive competitors like Abercrombie & Fitch (ANF) and American Eagle (AEO), Aeropostale has been on fire throughout the recession. When rivals were posting double-digit sales declines, Aeropostale was reporting double-digit increases.

2009 was no different; sales rose 18% and comps increased 10%. While many retailers are struggling to reach their 2007 levels, Aeropostale reported record earnings with a 54% increase in fiscal profits.

The streak appears unstoppable as managements anticipates a 26% to 29% increase in earnings for the first quarter of 2010. However, investors in Aeropostale will need to keep an eye on consumer confidence and retail spending.

While I don't predict this to happen for a very long time, when real improvement in the economy and the retail sector begins to occur, I anticipate a slowdown for Aeropostale. Just as teens quickly traded down to Aeropostale as the economy weakened, they can quickly reverse that trend and snub the lower-end brand.

For now though, I think the company is a bargain buy at less than 13 times its 2009 earnings.

In general, I'm far from turning into a retail bull. That being said, there are solid companies surviving the recession. It just takes a little digging around to see through the headline numbers and decipher which ones are stable companies and which are stabilizing from a few bad years.
Position in AEO
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