Fashion retailer and Motley Fool Stock Advisor recommendation American Eagle
Let's start with comparable-store sales, or comps. Comps increased 11% in June compared with an eye-popping 28% in June 2005. That's an impressive year-over-year performance, indicating American Eagle's concept still has lots of appeal. Still, we should remember that comps are only one piece of data and, as fellow fashion Fool Alyce Lomax poignantly pointed out, should be used with other information.
Absolute sales increased 19%, powered by "men's and women's shorts, knit tops, jeans, and intimate." Now I don't know about the rest of you men, but I don't buy "intimate" wear. So I'll assume the ladies were responsible for strength in that category. The Internet channel continues to gain traction, as June sales at AE.com rose 56% compared with June of last year.
Here is where I think the sales call gets interesting, as if the possibility of men buying intimate wear wasn't interesting enough.
Management reported that traffic was up for the month, leading to "a high single-digit increase in transactions per store." In addition, American Eagle's average unit retail price and units per transaction increased in the low single digits. So what does all this retail-speak mean? It means that more people came into the stores, they bought more stuff, and they paid higher prices. That's about as good as it gets.
American Eagle achieved these results even while reducing promotional and marketing programs, further evidence that the concept is still popular and an indicator that margins could be on the rise. So perhaps I spoke too soon. Higher sales and higher margins would certainly be better than just higher sales.
My buddy Nate Parmelee wrote about Wal-Mart's
I don't know whether I should read that much into two data points, but the thought is interesting. So is comparing American Eagle's comps with its competitors.
Company |
June 2006 Comps |
---|---|
Chico
's FAS |
5.1% |
The Gap |
(6.0%) |
Abercrombie & Fitch |
(4.0%) |
Guess? |
11.7% |
Clearly, some concepts are working and some have work to do. I would rate American Eagle in the former camp, especially because it also increased its second-quarter earnings guidance to $0.41 to $0.43 per share from $0.39 to $0.41, compared with $0.37 in earnings last year. But I still want to see if those margins are increasing and leading to higher returns on invested capital. We'll have to wait until the end of the quarter for that.
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David Meier does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.