Are These Teen Retailers Finally Making A Comeback?

Photo Credit:thinkretail

The early half of this decade was looking quite grim for teen retailers. Companies including Abercrombie (ANF) and American Eagle (AEO) were seeing sharp declines in earnings as preferences were changing. Teens were no longer yearning for the same shirt as their peers, instead they were identifying with new fashion trends as they looked to individualize themselves. Logo centric apparel that Abercrombie and its peers had been churning out since the 90s had fallen by the wayside in favor of unique products. Traffic at malls, where these brands do most of its business, were also reaching all time lows with teens opting for different forms of entertainment.

However, all is not lost as teen retailers appear to be making a comeback. After parting ways with its founder and CEO in 2014, Abercrombie has ushered a new wave of change in the past two years. The company has moved away from its notoriously sexy image, to better position itself in the rapidly changing fashion industry. Abercrombie has been quick to restructure its stores away from the club like ambience of shirtless models and provocative ads for which they had become famous. These efforts have not only impacted its core business, but subsidiaries Hollister and Gilly Hicks as well. Abercrombie recently shut the doors on its Gilly Hicks business and is now pushing Hollister into the burgeoning fast fashion segment. The move into fast fashion should provide Abercrombie an edge over its competitors and also drive top line expansion.

Early indications look as though Abercrombie is finally gaining traction. The company is coming off two consecutive quarters of positive earnings surprises with shares soaring 46% in the past 6 months. This quarter, the Estimize consensus is calling for EPS of $0.97 and revenue of $1.10 billion, 1 cent higher than Wall Street on the bottom line. Given the weak holiday season, profitability looks as if it will fall short on Wednesday, projected to decline 15% on a YoY basis. That said, the apparel retailer has consistently beat on earnings, eclipsing the Estimize consensus 60% of the time while beating Wall Street 80% of the time.