Aug 7, 2009
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Apparel chain stocks up on hopes for second half

Aug 7, 2009

SAN FRANCISCO (Reuters) - Investors overlooked weak July sales results from some U.S. apparel chains and sent the shares of battered names such as Gap Inc (GPS.N), Limited Brands Inc (LTD.N) and Zumiez Inc (ZUMZ.O) up on hopes of improvement later this year.

At the same time, some retailers that actually posted sales gains on Thursday 6 August, including Aeropostale Inc (ARO.N), Buckle Inc (BKE.N) and Chico's FAS Inc (CHS.N), saw shares fall.

"You're seeing a very forward-minded investor. So they're overlooking near-term results and really looking for a sign that the back half of the year could show continued margin or earnings upside," said Needham & Co analyst Christine Chen.

That means retailers that have improved their operations and fashions during the lingering recession-driven sales slump are being rewarded, analysts said.

"If you believe in the turnaround ... you're going to start focusing on those names that have been somewhat beaten down and look beyond second-quarter results," said Brean Murray Carret analyst Eric Beder.

Besides Abercrombie & Fitch Co (ANF.N) and American Eagle Outfitters Inc (AEO.N), which both reported bigger sales dips than analysts expected, Beder cited New York & Co Inc (NWY.N) and Talbots Inc (TLB.N), which did not report monthly figures.

"If that's not the theme, why in God's name is Abercrombie up 3 percent on a 28 percent same-store sales decline?" Beder added.

Abercrombie, once the most popular brand among teens and young adults, has seen sales erode due to higher prices than rivals and recent ho-hum styles, which it is trying to fix.

Abercrombie shares closed up 3.1 percent at $30.94, while American Eagle was up 6.7 percent at $14.90 and New York & Co and Talbots rose 4.9 pct and 3.4 percent, respectively.


At teen chain Aeropostale -- which has consistently posted monthly sales gains in the face of recession and the woes of rivals -- shares closed about 3 percent lower after a 6 percent rise in July sales fell short of the 9.9 percent analysts had expected.

"Poor little Aeropostale," said Chen. "Yes, they came in below expectations, but they were one of only a few companies that gave a positive comp."

Aeropostale, whose clothes cost less than American Eagle's or Abercrombie's, also raised its second-quarter profit forecast to 54 to 55 cents per share. That was above the outlook range of 43 cents to 45 cents per share it gave in May, which it raised in July to a range of 45 cents to 47 cents.

"And the stock is down!" Chen said. "It makes no sense."

Similarly, Buckle shares plunged over 15 percent after the trendy retailer posted a sales gain that was smaller than analysts expected.

"People have been waiting for that stock to miss expectations for a while and they finally did," said Chen.

Chico's shares fell as much as 2.7 percent before turning positive to end the day at $11.67, up about 1.5 percent. The women's apparel retailer posted a 1.3 percent sales gain and issued a better-than-expected profit forecast.

At Limited, improved bra sales at its Victoria's Secret chain and flat same-store sales at its Bath and Body Works stores helped it post a 7 percent sales decline that was less than the 12.4 percent drop analysts expected. Limited shares rose nearly 13 percent.

At Gap, a profit view above Wall Street estimates sent shares up more than 8 percent. The parent of the Gap, Banana Republic and Old Navy chains said it now expects second-quarter earnings to range from 30 cents to 32 cents, above the 28 cents per share consensus view, according to Reuters Estimates.

The Dow Jones U.S. Apparel Retail Index .DJUSRA was up 2 percent at the close, while the wider Standard & Poor's 500 Index .SPX was down about 0.6 percent.

(Reporting by Alexandria Sage; additional reporting by Chavon Sutton)

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