Urban Outfitters, Inc. (URBN), Abercrombie & Fitch Co. (ANF), American Eagle Outfitters (AEO): Three Retailers Fighting Economic Woes

The U.S. economy might be recovering, but a very slow pace is complicating decision making for retailers. Retail spending in April slowed amid weaker economic data and cast doubts about the real recovery of the U.S. economy: lower creation of non-farm payrolls and new claims for unemployment insurance supported those fears.

Here’s how three clothing retailers, Urban Outfitters, Inc. (NASDAQ:URBN), Abercrombie & Fitch Co. (NYSE:ANF), and American Eagle Outfitters (NYSE:AEO) are managing to fight the sluggish economic recovery:

Urban Outfitters, Inc. (NASDAQ:URBN) seems to be the best positioned in this difficult environment. Why? It has solid financials: net sales for the first quarter of fiscal 2014 increased 14% to $648 million over the same quarter last year, a record figure. Also, its net income rose 38.5% to $47 million for the same period, mainly due to controlled operating expenses. It also opened seven new stores and made improvements in its direct-to-consumer channel which increased 9% over the first quarter of fiscal 2013.

The teen market is in trouble

Both other companies: Abercrombie & Fitch Co. (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO), have to fight in a very competitive market which hurt sales margins as promotions are increasing month over month. If we add to this the sluggish economic situation in the U.S., it will paint a troubling picture for retailers in this category.

Abercrombie & Fitch Co. (NYSE:ANF) is in the middle of the storm: for the first quarter of 2013, it posted a net loss of $7.2 million, showing that it has not recovered as in the first quarter of 2012 it had a loss of $21.3 million. Its net sales also decreased about 9% to $838.8 million and direct-to-consumer sales declined 17% to $534.9 million.

The company had problems regarding stock shortages and announced it is planning to close around 50 stores in the U.S. These are bad news for investors, but be aware of the international strategy the company is trying: it will open new stores in China, Australia, France, and the U.K. Its total international sales improved 10% to $303.9 million in the first quarter of 2013, so this could be a good alternative to diversify the risks in the U.S. economy, but a costly initiative if proven wrong.

Although American Eagle Outfitters (NYSE:AEO) is in better shape than Abercrombie & Fitch Co. (NYSE:ANF), last quarter’s results showed some alarming signs that must be resolved. Its net revenue for the first quarter of 2013 decreased 4% to $679 million, operating income decreased 11% to $57 million, and comparable sales fell 5% compared to the same quarter last year. Despite this, the company’s balance sheet is strong and the best evidence for this is that management announced a share buyback plan of 20 million shares and an increase in quarterly dividend of 14%. Also, costs have been contained and promotions decreased, which resulted in an excellent operating margin of around 15%.