Jefferies: Stocks In Specialty Retail Look Attractive Again

Jefferies says, “Last week's earnings reports showed: 1) traffic trends, while still choppy, are moving back on-mall and away from off-mall; 2) companies with peak margins (ARO, ROST, TJX) are starting to see less fundamental upside; and 3) share in teen retail is moving to ANF and away from ARO.” “While long-term trends remain downbeat, we like these stocks near-term as valuation multiples have compressed, and expectations have been lowered. With BTS selling off to a decent start, we think the group works higher in the near-term….With BTS around the corner, teen retailers (AEO, ANF) should receive a boost from need-based shopping. Meanwhile FOSL and GES should continue to benefit from constant currency sales and translation as the Euro regains some strength,” the analysts mention. Jefferies adds, “Again while we still consider these to be great companies, we think tough compares, peak fundamentals, and rising competition will cause the off-price stocks to underperform through the rest of 2010 and 1H'11.”