Jefferies Remains Constructive On Specialty Retailers (AEO, ANF)

Jefferies remain more constructive on the Specialty Retail space as valuations are low, expectations muted, and sentiment negative. Heading into September sales results, we would buy the teen names (AEO, ANF) and sell the off-price (ROST, TJX) retailers. Jefferies checks suggest the month started strong with a very good Labor Day weekend. It believes Sep. trends remained robust as people returned to the malls for "need" based shopping. The environment was quite promotional in September, particularly in the teen space. However, Jefferies believes managements are now planning into promos rather than reacting which is good for margin preservation. Checks suggest that promotions helped drive traffic and often led to a halo effect with the sale of a full price item. American Eagle AEO and Abercrombie and Fitch ANF are the favorites in the space right now as AEO sales are improving from better merchandise and positive momentum in the women's biz. Additionally, cost cuts are coming, inventory is in excellent shape which should support margins. ANF is gaining market share in the U.S. with better product and more attainable and affordable pricing. ANF's international prospects are stellar, making the stock very attractive. AEO is trading higher at $15.28 ANF is trading higher at $38.43