Investing without looking back at prior decisions is a bit like driving without a rearview mirror. Sure, the road ahead matters most, but you can learn a lot about your driving by scanning the road behind you for dropped parts.
Today's lesson regards a pair of retail stocks that both interested me, and many of my colleagues, beginning about this time last year: American Eagle Outfitters
In late August and September of 2005, both stocks hit the skids on what the Street perceived as lackluster sales results and fears of more to come. Nearly a year later, we see the difference between one stock that was a real value and one that has yet to prove it can bounce back.
The tale is told simply in terms of same-store sales. It's true that too much can be made of monthly "comps." But it's also true that these reports can provide the key clues to whether your investment is going to sink or swim in the tides of retail fashion.
Let's start with a serial sinker. On Wednesday, Gap reported yet another month of negative same-store sales growth. This was supposed to be the beginning of Gap's big resurgence, with new media and collections bringing back the shoppers. Instead, comps dropped 4% for July and 5% for the quarter, and management noted that it had taken aggressive markdowns that would scuttle margins for the upcoming period. That led to a drop in guidance to $0.13 to $0.15 per share, quite a bit lower than the $0.22 analysts have been expecting.
American Eagle Outfitters, on the other hand, bounced back from its sales slump relatively quickly back in 2005, and it's been putting up decent numbers ever since. In the latest of these upticks, yesterday, American Eagle reported a 7% increase in July same-store sales, a showing that's expected to power earnings to $0.45 to $0.46 per share for the quarter, ahead of the $0.43 that analysts expect.
That performance comes despite cutthroat competition from Abercrombie & Fitch
Clearly, shoppers haven't stopped spending money entirely -- take a look at Guess?
Pacific Sunwear, American Eagle, and Gap are Motley Fool Stock Advisor Recommendations. Gap is also a Motley Fool Inside Value pick. New York & Co. is a Motley Fool Hidden Gems recommendation, as well as the bane of Seth's retail portfolio. You can get a look at the logic behind the picks, as well as community thought on current prospects, by trying any premium service for free.
Seth Jayson loves investing in retail, because it's the craziest game on the Street. At the time of publication, he had shares of Guess?, American Eagle, and New York & Co. but no positions in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
More from The Motley Fool
Gap Still Has More to Prove Despite Gains
The clothing retailer made it over several hurdles last quarter, albeit very low ones, now it needs to aim higher.
3 Retailers Hitting 52-Week Highs Right Now
Who says that brick-and-mortar stores are dead? Best Buy, Five Below, and Gap are all trading at their highest levels of the year.
Why Gap Stock Jumped 24% in November
Investors were surprised by the retailer's improving operating trends ahead of the holiday shopping season.