shares of Urban Outfitters (NASDAQ: URBN ) , American Eagle Outfitters (NYSE: AEO ) , and Men's Wearhouse (NYSE: MW ) have all been on the decline. Each company reported quarterly results that fell short of expectations, which challenges their validity as investment prospects. However, did Mr. Market overreact to the results, or is each business' position really as bad as it seems?
Urban Outfitters saw mediocre revenue and earnings growth
Of the three retailers profiled, Urban Outfitters performed the best. For the quarter, the company reported revenue of $905.9 million. This represents a 6% gain compared to the $856.8 million the company reported in the year-ago quarter but fell short of the $928.4 million analysts expected.
In the earnings release, management attributed the revenue shortfall to a 1% increase in comparable-store sales. While Urban's Anthropologie and Free People brands did well during the quarter, its namesake brand saw comparable-retail sales decline 9%.
In terms of profitability, Urban saw a modest uptick. For the quarter, the company reported earnings per share of $0.59. This is 5% higher than the $0.56 the company reported in the year-ago quarter and 7% above the $0.55 analysts anticipated. However, the business attributed the profit increase to lower taxes, not declining core costs. This, combined with the company's lackluster revenue, helped push shares down.
American Eagle had its wings clipped
While Urban's financial performance this past quarter was mediocre, American Eagle's was downright awful. For the quarter, the company saw its revenue come in at $1.04 billion.
This is slightly higher than the $1.03 billion analysts expected but 7% below the $1.1 billion the company reported in the year-ago period. Management attributed the revenue decline to a 7% drop in comparable-store sales, as interim CEO Jay Schottenstein claimed that tough macro conditions in the retail sector were to blame.
At face value, a revenue beat might come across as attractive. But where the company really fell short was in profitability. For the quarter, American Eagle reported earnings per share of $0.05. This represents an 89% drop compared to the $0.47 the company reported in the year-ago quarter and was due, for the most part, to its cost of goods sold rising from 58.8% of sales to 70.6%.
Even after adjusting for certain expenses, the company saw its earnings come in just a penny above estimates, at $0.27, but investors apparently weren't convinced that this made the situation look any better.
Men's Wearhouse scored big... then faltered!
Men's Wearhouse saw its shares rise on the day it announced it would be acquiring Jos. A. Bank for $1.8 billion. Although this news was viewed as a positive for the suit retailer, shares sank after the market closed once earnings metrics came out.
For the quarter, the company saw revenue come in at $560.6 million. This was a whopping 8% below the $611.7 million analysts forecast and was chalked up, for the most part, to a challenging consumer spending environment and severe winter weather. These factors, collectively, forced the business' namesake brand to report a comparable-store sales decline of 2.5%, while its K&G brand dropped 7.7%.
In terms of profitability, Men's Wearhouse continued its losing streak. For the quarter, earnings per share came out to -$0.64. This is far lower than the $0.07 loss reported in the year-ago quarter and pales in comparison to the $0.13 loss analysts anticipated. While its cost of goods sold rose from 60% of sales to 62.8%, the primary drivers behind lower profits were its selling, general, and administrative expenses, which jumped from 41% of sales to 47.8%.
Moving forward, it's difficult to tell how well each of these companies will perform. However, should the downward trend facing almost every retailer reverse, it's likely that businesses like Urban, American Eagle, and Men's Wearhouse will see some nice upside.
Because of its acquisition of Jos. A. Bank, Men's Wearhouse currently has the most interesting dynamics. But for investors who prefer to keep things simple, Urban might be the safest bet. Despite seeing mediocre performance, the company did reasonably well when compared to both American Eagle and Men's Wearhouse.
Are any of these companies bound for greatness?
Right now, Wal-Mart is the king of retail. However, there are two companies that are on their way toward changing that. Is it possible that Urban Outfitters, American Eagle, or Men's Wearhouse belong on this list, or are there better opportunities for the Foolish investor?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.