Because markets don't like abrupt surprises, companies try to telegraph succession plans well in advance to keep jittery investors calm. So, the news that American Eagle Outfitters (AEO 1.37%) CEO Robert Hanson up and quit only weeks after providing earnings guidance that sales fell 2% in the fourth quarter on a 7% drop in comps is causing tremors for the teen retailer, and its stock plunged 10% in early-morning trading.
The retail landscape is in for some serious upheaval as more companies report earnings. Whereas many of them had initially looked to Christmas for a recovery from a tough year, the season suddenly had them panicking. Rather than providing safety, it proved instead to be a warning bell that caused retailers to pull out all the stops.
From an early start to the seasonal frenzy to round-the-clock shopping marathons, retailers everywhere became desperate for sales and slashed pricing such that we're likely to see margins evaporate when earnings are announced. Once the wishful thinking for Christmas was over, it soon changed to hope for after-Christmas sales and gift card redemptions in January.
Yet just last week, electronics superstore Best Buy said sales for the nine-week period ending Jan. 4 fell 2.6% and warned margins would be gutted by 175 to 185 basis points. I've noted previously how J.C. Penney couldn't bring itself to report any numbers in its Christmas update, and American Eagle admitted that with store traffic and sales coming in at the low end of expectations, margins and earnings per share were coming under pressure.
Teen retailers are under fire because of the fickle tastes of their target demographic, which has allowed fashion-forward competitors like H&M to steal customers away. It says something when Abercrombie & Fitch (ANF 0.31%) can post a big 6% decline in same-store sales for the holiday and see its stock jump because analysts had been expecting its numbers to come out even worse.
Abercrombie has posted falling comps for two straight years now -- every single quarter has been lower than the year-ago period for eight consecutive quarters -- yet it's seen as an improving situation. The environment is so harsh that Aeropostale is considering strategic alternatives, including going private.
Whereas investors couldn't get Abercrombie to dump its CEO, they can't get one to stay at American Eagle. Hanson left after less than two years on the job, and though the company reiterated the guidance it gave weeks ago, it still portends the picture is going to get ugly.
Christmas was a bust despite the early start, hype, and hysteria that mounted over the last two months of the year, and I've warned for some time that the retail market is not a place to invest right now. American Eagle Outfitters' CEO seems to be suggesting it's not even a place you want to work.
