American Eagle Outfitters (AEO), Abercrombie & Fitch Co. (ANF): Is This Teen Retailer a Good Bet?

Aeropostale Inc (NYSE:ARO) will look for margin growth in the second half of fiscal 2013, as it has included fashion to its stores. It has also focused on improving its sourcing and allocation process this year. The company has reported negative comps and EPS growth in the first quarter of this fiscal year. It will expect better results ahead with Woven Top and Bottoms and Denims expected to drive comps growth. Its increased penetration in fashion products will help drive sales growth in the “back to school” season.

Source: Google Finance and Yahoo Finance

American Eagle Outfitters (NYSE:AEO) has reported the highest operating margin of 6.74% and the lowest one-year forward P/E of 11.46 among the three mentioned peers. Abercrombie & Fitch Co. (NYSE:ANF) has reported -1.66 operating margin and P/S ratio of 1.15. Aeropostale Inc (NYSE:ARO) has reported the lowest operating margin of -4.53 and the highest forward P/E of 21.86.

Conclusion

American Eagle Outfitters (NYSE:AEO) has invested in the omni-channel network and updated its IT infrastructure to increase online sales this year. Aerie Brand and Factory store sales have performed better than the company’s average sales. It has also increased its capital expenditure on new store growth, closures, and remodeling. Its investments are expected to drive sales growth in the future. The company is trading at a forward PE of 11.66 times. Its EPS forecast is 1.44 for the current year and 1.65 for next year, which is an estimated 14.68% year-over-year growth. According to consensus estimates, the company’s top line is expected to grow 6.10% over the next year. With a PEG ratio of less than 1, the stock looks attractive. Also, it seems like the company is gaining market share from Aeropostale, which is expected to post a year-over-year decline in sales this year. The company has a dividend yield of 2.60%, which is highest among the teen retailers. I recommend a ‘buy” for long-term growth.

The article Is This Teen Retailer a Good Bet? originally appeared on Fool.com and is written by Ash Sharma.

Ash Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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