Well, that was certainly unpleasant.
Retail clothier and Motley Fool Stock Advisor recommendation American Eagle Outfitters (NYSE: AEO ) issued its February sales report Thursday -- and promptly got shot out of the sky. All that remains today is a cloud of feathers in the air, gently wafting back to earth.
And what was the news that cost AE nearly $900 million in market cap? Um, comps were down 4%, and next quarter is looking pretty weak.
That's it?
Yep, pretty much. Like 'most everyone else in retail-land, AE's same-store sales slumped in February. The 4% dip was better than what we saw at Gap (NYSE: GPS ) or Limited Brands (NYSE: LTD ) (down 6% and 9%, respectively), but worse than Abercrombie & Fitch (NYSE: ANF ) and Hot Topic (Nasdaq: HOTT ) posted. Both of those were down about 2%. And it was certainly not as good as the news turned in by Aeropostale (NYSE: ARO ) , which grew comps by 7%. But disastrous? Hardly.
Silver lining 'round that cloud o' feathers
You wouldn't know it from the stock price, but AE actually had some good news mixed in with the bad yesterday. Men's clothing sales, for example, were up in the mid-single digits. Total customer visits were down slightly, but those customers who did show up spent more than usual. On a recorded sales call accompanying the published sales release, AE described a "low-single-digit" increase in the average amount AE removed from consumers’ wallets on their way out the door.
In fact, that may mitigate some of the bad news AE relayed to investors yesterday -- the likelihood that management will need to cut prices to move inventory in 2008's first quarter. If AE has higher average sales prices to start with in February, the store's "markdowns" may be starting from a higher point than investors fear.
Also good to hear was the fact that direct sales -- via ae.com -- were up a stellar 32% in February. Because "clicks" revenue generally trumps "bricks" revenue on margin, growth in website sales may point to stronger margins than we'd otherwise expect. Management's prediction of $0.66 per share in Q4 earnings, a penny more than analysts predict, further supports this theory.
Foolish takeaway
No one likes it when a retailer's same-store sales decline, but AE's goose ain't cooked yet. What's more, with the stock now selling for a mere nine times forward earnings, the company is starting to smell pretty tasty.
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