(By Balachander) Brean Capital LLC analyst Eric Beder wrote that post Black Friday scorecard should be encouraging with five apparel retail players reporting 3Q results on Wednesday.
Beder expects the key theme to be: 1) Black Friday got off to a solid start, with managements remaining cautious for the rest of the season; 2) lower raw material prices are beginning to have an impact, which will accelerate into the Holiday season.
Inventories are in robust shape, and will allow for more strategic discounts going forward and the consumer remains tough to gauge, leading to conservatism in the forecasts, the analyst noted.
Beder said the key to investors navigating this data will be how much of this scenario is already baked into the stock price?
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While American Eagle (NYSE: AEO) continues to do all the right things, Beder thinks Street expectations encapsulate much of the upside; "we continue to like what management is doing, but we expect them to be conservative in 4Q guidance."
Aeropostale Inc. (NYSE: ARO) continues to get no "love" from the Street; Beder believes solid inventory levels, strong fashion looks and the return of a more rational discounting environment for the teen segment all should benefit Aero; low Street expectations add upside to the mix. "We remain buyers of ARO ahead of earnings."
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The analyst wrote that Express Inc. (NYSE: EXPR) faces some of the toughest comparisons of Brean Capital's group and a customer who is beginning to push back against the company's price increases; coupled with higher YoY Black Friday discounts and what "we view as aggressive Street expectations, we remain worried near term."
Guess? Inc. (NYSE: GES) stock remains cheap, but near term misses and recent management shifts leave the story somewhat adrift, Beder said. "We (and the Street) expect tepid results for 3Q and guidance for 4Q; more importantly, we believe management needs to reset the story and create the path to a return of some level of prominence."
New York & Co. (NYSE: NWY) is poised to take the next step in its recovery with an even better mix of fashion and measured discounting; Beder believe the company will be able to demonstrate material progress in 3Q and the Holiday season. "We remain buyers of NWY ahead of earnings."