Retail Rummage Sale

The news is in: December was a nasty month for retailers (as expected, really). According to Thomson Financial's data, 63% of retailers that reported December comps missed analysts' expectations for December. Yep, that's pretty painful.

Let's take a look at the December sales data for a few well-known retailers, and then check how our CAPS community feels about the stocks.

Company

CAPS Rating (out of 5)

December Comps

December Sales

Stock price impact

American Eagle Outfitters (NYSE:AEO)

****

(2%)

5%

7.05%

Aeropostale (NYSE:ARO)

***

12.2%

17.5%

(0.08%)

Chico's (NYSE:CHS)

***

(13.7%)

(5.6%)

3.84%

Abercrombie & Fitch (NYSE:ANF)

**

(2%)

9%

(2.28%)

Gap (NYSE:GPS)

**

(6%)

(6%)

(7.13%)

Ann Taylor (NYSE:ANN)

*

(9.4%)

(3.8%)

(15.47%)

CAPS data as of Jan. 10.

Boy, there's a lot of ugliness there, huh? Some of these names also cut guidance; Chico's forecast a loss for the fourth quarter, American Eagle Outfitters lowered its fourth-quarter guidance, and Ann Taylor reduced its 2007 forecast.

Hard times
Our CAPS community may have awarded Chico's a middle-of-the-road three-star rating, but its comps were particularly disheartening. Chico's has long struggled to turn around, but it's not there yet. Still, for many CAPS players, it looks like hope springs eternal for Chico's. After all, 675 players have rated it as an "outperform" versus just 73 "underperform" calls. CAPS player billyhall contends, "Oh come on, baby boomer women will keep buying up these clothes. It pays a dividend and it's cheap as dirt right now." We shall see.

Of these retailers, Ann Taylor has the lowest regard in the CAPS community, with a rating of just a single star. CAPS player (and All-Star) NeroSagetrade just about said it all in his bearish pitch in October:

Ann Taylor is another case in the retail world of what I expect to be "duck and cover." Ann Taylor saw a modest rise in same store sales in September, but that was largely from their lesser priced Loft locations. The higher margin and more expensive Ann Taylor locations performed poorly like their competitors. Consumers are not spending like they once were and 3 months ago this trend shifted dramatically. Credit crunches and rising mortgage rates, as well as overall economic uncertainty are really scaring the consumer away from these higher brand names. I expect earnings estimates to fall here and fall rapidly. That long-term uptrend will easily break within six months as I see little chance for this [to] outperform in this environment.

Better tidings
On the other hand, Aeropostale, which has a mediocre three-star rating, had a great December. (It also increased its fourth-quarter guidance -- again, bucking the trend.) I ran across a few CAPS pitches that brought up the idea that Aeropostale might be headed for successful long-term performance.

Judging by its four-star rating, out of all these names, the CAPS community's sentiment is strongest for American Eagle Outfitters, which also happens to be a Motley Fool Stock Advisor recommendation. A whopping 1,733 players think American Eagle will outperform the market, and only 89 believe it will underperform. CAPS player tostradamus pitched recently:

Insider buying. Stock has been beaten down but the kids still like the brand. Also came out with new Aerie brand of "dorm wear" that my teenage sister-in-law and all of her friends can't get enough of. With the largest graduating high school class in history coming up in 2009, something like dormwear in this trendy atmosphere will do well. Entering oversold territory.

What do you think?
One month of comps data doesn't tell investors nearly enough for a buy, sell, or hold decision, but it does give a clue how retailers are resonating with their customers at the moment. In addition, with all the talk of recession, investors have a little more data to chew on as they contemplate potential retail stock holdings.  

Judging by the CAPS community's sentiment, it's easy to suspect this might be a good time to contemplate a stake in American Eagle Outfitters -- and, on the other end of the spectrum, to fear that retailers like Gap and Ann Taylor aren't out of the woods yet. Of course, you don't have to agree with the sentiment; for example, I'm more bullish on Aeropostale than the CAPS community is, and more bearish on Chico's, seeing how Chico's and its rivals have been having a hard time attracting their mature female customers for quite some time now.

What do you think? Go ahead and add your opinion on these stocks (and many more) to Motley Fool CAPS, which is currently 80,000 participants strong and a great place to hunt for stock ideas. Happy bargain hunting in the retail-stock universe!


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