US teen sector sees light at end of tunnel, but there’s still work to be done

At last there was some good news for the beleaguered US teen apparel sector late Monday, even if it’s not out of the woods yet. Step forward Aéropostale and Urban Outfitters who both came out with upbeat messages and their shares jumped a staggering 25% and an impressive 7.5%, respectively, in after-hours trading.

Aéropostale may be still down but it wants investors to know it’s far from out and it announced some personnel changes that help it reflect the structure it had back in its glory days (more of that later).

What cheered investors in particular was the retailer again narrowing the range of its expected loss for Q4 thanks to slowly improving sales in January. It now expects a loss of 1-6 cents a share. Not great news you might think, but a whole lot better than last month’s estimate for a loss of 25-31 cents a share.

Sales for the period were still falling but by a better-than-expected 11% to $594.5m, while comps were down 9%. Again, this was far better than the 15% decline of a year ago. Analysts had expected $578m in sales for the quarter. CEO Julian Geiger said he was “encouraged with the progress we are making.”

He also announced the promotion of CFO Marc Miller to chief operating officer with former Delia’s CFO David Dick coming in to take up the vacant role. The changes prompted Geiger to add: “We are returning to an organisational structure that existed when Aéropostale registered its most significant gains in sales and profitability.”

Meanwhile, over at Urban Outfitters there was a bigger-than-expected increase in Q4 sales, up 12% to a record $1.01bn, topping the $998m analysts had pencilled-in.

Comparable sales also rose 6%. By brand, at Free People comps jumped 18%, Anthropologie lifted 6% and Urban Outfitters climbed 4%. Wholesale segment net sales rose 21%.

With refreshing understatement, given those impressive figures, CEO Richard Hayne said: “We are encouraged by the steady progress the Urban Outfitters brand is making in re-engaging its core customer” despite promotional activity that was higher than expected.

He also highlighted a clean inventory position as Urban enters the spring selling season.

It’s been a tough time for the youth apparel sector but while those two reports suggested the pain may be easing, there was less good news for Abercrombie & Fitch. Its shares closed down 6.5% Monday after Wunderlich Securities slashed its rating to ‘sell’ from ‘hold’ on the belief that hopes for a turnaround are overdone.

Analyst Eric Beder also cut his stock price target falls to $17 from $30. He wrote in a note to clients that he believes both Abercrombie and Hollister have been unable to retain any pricing power as they switched away from logo-driven products.

He also believes dollar strength will hurt its international business, as well as its domestic business that is “highly dependent” on tourist-driven traffic. “When combined with weak management credibility, we believe the pieces are in place for material disappointments when Q4 results are announced on March 4,” Beder wrote.

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