What happened
Shares of teen apparel retailer American Eagle Outfitters (AEO 1.37%) were climbing today despite no specific news out on the stock. Instead, an announcement from rival L Brands (BBWI), the parent of Victoria's Secret, seemed to boost the shares.
As of 11:16 a.m. EDT, American Eagle stock was up 7.5% while L Brands had surged 32.8%.
Image source: American Eagle Outfitters.
So what
American Eagle's Aerie brand, which sells intimates to young women and teens, has been one of the biggest success stories in retail in recent years as the brand has embraced an opposite approach to Victoria's Secret by pledging that its photos aren't airbrushed and using models that look like everyday women, rather than the "Angels" that have typified Victoria's Secret.
As tastes and cultural mores have changed, Aerie has emerged as a winner in the sector while Victoria's Secret has been on the losing end. Therefore, investors may interpret challenges at Victoria's Secret as being favorable for American Eagle. L Brands just announced that sales at the lingerie brand are expected to decline by 40% in the second quarter, and it plans to close 250 Victoria's Secret stores and cut its corporate head count by about 15%, or 850 people.
L Brands is also in the throes of separating Bath and Body Works, its smaller, better-performing brand, from Victoria's Secret, which some say has fallen out of fashion in the #MeToo era. Also weighing on the brand was former CEO Leslie Wexner's ouster due to his ties to Jeffrey Epstein.
Now what
During the first quarter, Aerie's sales decreased just 2%, compared to a 45% plunge in American Eagle brand revenue, showing the strength of its intimates brand and that it's well positioned to capture market share from Victoria's Secret as that company continues to restructure. Prior to the pandemic, the brand had seen a whopping 21 straight quarters of double-digit comparable sales growth, proving that it's quickly gaining market share.
American Eagle shares have faded since a surge following the first-quarter earnings report in the beginning of June as the economic recovery has faltered in the U.S. However, today's news may remind investors that there is still enormous potential in the Aerie brand.
