American Eagle Outfitters (AEO), Abercrombie & Fitch Co. (ANF): Should You Stick With This Teen Apparel Retailer?

Abercrombie has a similar problem, since its three core brands — its namesake stores, Hollister, and Abercrombie Kids — appeal to different shoppers in different demographics rather than shoppers in different price tiers. Aeropostale, Inc. (NYSE:ARO) also followed Abercrombie & Fitch Co. (NYSE:ANF)’s example, by adding a children’s brand, P.S. from Aeropostale, in 2009.

Moreover, The Gap Inc. (NYSE:GPS)’s same-store sales rose 7% in June, a clear indication of improvement from the first quarter, when the retailer’s same-store sales rose 2%. Investors have also noticed this divergence, as seen in Gap’s share price growth compared to its industry peers over the past five years.

A Foolish final thought

American Eagle Outfitters (NYSE:AEO)’s second-quarter forecast is a bleak sign of things to come for the teen apparel industry. Teen shoppers are a notoriously fickle demographic, and if American Eagle is going down, then Abercrombie & Fitch Co. (NYSE:ANF) and Aeropostale, Inc. (NYSE:ARO) are sure to follow, so it would be prudent to avoid the teen apparel sector completely.

However, The Gap Inc. (NYSE:GPS) could continue rising throughout the rest of the year, based on its positive monthly same-store sales growth. Investors should watch Gap’s July same-store sales release on Aug. 8 for further confirmation of that uptrend.

In closing, American Eagle Outfitters (NYSE:AEO) needs to distance itself from Abercrombie & Fitch Co. (NYSE:ANF) and Aeropostale, Inc. (NYSE:ARO) to revive its top and bottom line growth. If American Eagle can tap into some strategies used by The Gap Inc. (NYSE:GPS) (tiered pricing) and H&M (lower prices, faster rotation), it could still turn things around, since it hasn’t fallen as far as Abercrombie and Aeropostale yet. However, investors should avoid American Eagle for now, since the stock’s downtrend could continue for several more quarters.

Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

The article Should You Stick With This Teen Apparel Retailer? originally appeared on Fool.com.

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