Fool.com: American Eagle and The Buckle Lose Ground (News) August 5, 1999

Coming Undone

August 5, 1999

Shares of two tony apparel retailers lost ground today, as both American Eagle Outfitters (Nasdaq: AEOS) and Buckle Inc. (NYSE: BKE) moved back in large part because the companies couldn't post same-store sales numbers comparable to the go-go digits reported in periods past.

Both companies have been on an impressive run of sales figures. Fashionable Buckle, which aims to bring urban style to America's heartland, and lower-priced Abercrombie & Fitch (NYSE: ANF) knockoff American Eagle -- lawyers, please ignore that comment -- have been on an impressive run over the past two years, regularly turning in monthly revenues and same-store sales growth figures in the double digits.

But investors don't like to see happy trends coming to an end. American Eagle today reported July same-store sales growth of 13.5%, respectable by most any measure but less than half last year's nearly 38% increase.

Buckle, meanwhile, said July comps were down 4.5% from last year. It now expects to turn in Q2 EPS of $0.27 or $0.28, missing Wall Street's $0.31 consensus estimate, when it reports results August 12.

While both stocks were down today, Buckle took the bigger hit, losing more than 30% of its market value.

Where do shoppers go from here? Both companies have done pretty good jobs of merchandising, but slightly more fashion-forward Buckle takes on more risk with its exposure to trends than American Eagle. American Eagle turns its inventory more frequently than Buckle, although in 1998 Buckle's ratio of sales growth to inventory growth was a bit better than American Eagle's.

For retail investors with limited tolerance for fashion risk, now might be a good time to start looking at American Eagle, a consistent performer with good inventory management and room for considerable growth, particularly with the shares trading at a discount to both Gap (NYSE: GPS) and Abercrombie based on projected full-year earnings.

But based on that kind of earnings valuation, Buckle might be the best pick of all following today's drop as it sits at about 10 times forward EPS, considerably less than you'd pay for any of the companies mentioned above.

The company has had quite a run over the past few years, growing sales and comps rapidly in a difficult business where other, higher-profile companies have struggled. While, as we all know, past results certainly aren't an indicator of successes to come -- and today's move clearly illustrates that no empire lasts forever -- Buckle may deserve a closer look with its stock beaten down. Similar investigations have paid off in the recent past.


Related Links:
Fool Plate Special, "American Eagle Flying Ever Higher," 3/4/99
1998 Year in Review, American Eagle
Daily Double, American Eagle, 12/3/98
Fool On the Hill, "Buckled up for a Downturn," 10/16/98
Daily Double, Buckle, 1/2/98

By Dave Marino-Nachison (TMF Braden) (TMF Braden)

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