Monday, September 9, 2013

Store Intel: Mall Musings

American Eagle Outfitters (AEO) - as we had indicated during our conference call from last week, we have taken note of the significant change in traffic at the various locations we observed in the Northeast. With the additional delivery of non denim bottoms and novelty sweaters and tops, we are paying close attention to AEO. During the last call, Mary Boland commented, " Our third quarter trends remain challenging. We've experienced weak store traffic across North America and a continuation of a highly competitive and promotional retail landscape. With this in mind and an assumption that sales remain under pressure, we expect third quarter EPS to be in the range of $0.14 to $0.16 compared to EPS of $0.41 last year. This is based on a comp decline in the mid- to high single-digits and continued margin pressure due to increased markdowns." Our research indicates that both traffic, conversion and sales have improved significantly. We are anxious to see the new "filler" of product due in around September 20th. While it is early in the Q3, we have raised our awareness of this name and see a potential upside opportunity in American Eagle.

Gap Stores (GPS) - a major hurdle has been achieved with a modest positive +1 comp for the month of August 2013. In comparison to the negative news and slowing traffic patterns at most mall based retailers, this is a major victory for the GAP. With OLD NAVY posting a +1% comp increase on top a +12% in 2012, we are very encouraged as we head into the early stages of Q3. We are very impressed with product assortments and mall traffic since the beginning of September. The product direction has been quite consistent and we are impressed. In particular, while many of their competitors are seeing a severe downturn in the denim bottoms category, OLD NAVY in particular is still producing positive sales trends in this category at the stores we visited. The "ROCK STAR" label is continuing to drive this category. We are very impressed with the GAP and feel very strong about the brand.

Aeropostle (ARO) - we are disappointed in the lack of improved foot traffic since the start of Q3. With all of the significant improvements in product offerings (which we applauded) our research indicates that business has not improved relative to both American Eagle and Abercrombie. We are very concerned even with the downward guidance provided by management and feel the current business might be performing below their revised guidance.

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