I've always thought retail to be a rather ho-hum business and retail stocks a tricky place to invest cash, most of all in those stores that specialize in hip clothes for subadults. After all, fashions change quickly, and teens are the ficklest shoppers of the bunch. Just look at recent disappointments for Abercrombie & Fitch (NYSE:ANF), Hot Topic (NASDAQ:HOTT), and Gap's (NYSE:GPS) Old Navy.
But Gen Y duds dealer Aeropostale (NYSE:ARO) seems to know exactly how to play the game, putting up yet another quarter of outstanding results. Here's a glimpse of the glamour: Revenues climbed 50% over last year's second quarter, with comparable store sales up an incredible 20%. Sales totaled $195 million. The $0.19 per share on the bottom line beat Wall Street estimates by $0.02 and represents growth of 280%.
In looking through the numbers, it's tough to find anything worth your worry. Gross margins have improved all year, notching a 3.1% gain this quarter. At the same time, operating expenses dropped 2.6%. The balance sheets look better than ever, with $97 million in cash and no debt. That's more than enough to cover the roughly $44 million needed for expanding the store base this year.
This kind of torrid but smartly managed growth makes the firm look a lot like Chico's FAS (NYSE:CHS), and it's one of few retailers to match the women's clothier's impressive stock appreciation over the past two years. Of course, Aeropostale also carries a premium valuation. The usual ratios (price-to-sales, price-to-earnings, enterprise value-to-free cash flow) are all higher than at industry peers. On the other hand, its industry peers aren't delivering triple-digit growth, and that's one reason Fools ought to consider paying full price for this premium company.
For more Fool fashion sense:
- Get more goods on Aeropostale.
- How about three chic stocks?
- Why is Abercrombie all wet?
At the time of publication, Seth Jayson had no position in any company mentioned. View his Fool profile here.
