$AEO: Comeback Potentially in Progress

Originally published August 20, 2014 here.

$AEO posted Q2 results that were slightly better than expected. Revenue still dropped YoY by (2%), but that beats the (5%) YoY drop in Q1. Profit’s down and comparable store sales are down, but here’s the silver lining. I walked in there to see what kind of traffic they were getting, how their designs were looking, what kind of promo activity and discounting was in play given the time of year (height of summer). All the signs looked good. The merchandise was on trend and promoted well. The teens were checking out a lot of the merch. Most importantly, they were buying.

It seems that if $AEO can sell out of their fall/winter inventory at the same efficiency that they did with spring/summer, then they may be on their way back. Key factors will be if they continue to nail the design aesthetic, anticipate competitive strategy for holiday season, and compete effectively using strong holiday promos without subsidizing base volume. The teen retail landscape is fickle, but with key competitors flailing (Abercrombie, Aeropostale), this could be the perfect time to capture market share.

I wouldn’t buy this stock until after we see some more traction, but if a December store check looks positive, it may be worth investing in prior to the Q4 results announcement.

Originally published at https://www.tumblr.com.