American Eagle Outfitters has been my top pick from specialty apparel this year, so in no way am I shocked by another strong quarter of execution from the new management team. However, I did take a flier for clients on Express into earnings based on very favorable Black Friday reads (owing to much better promotional strategies). Commentary on both calls, as well as the call on Foot Locker pre-Goldman buy initiation, could be found in the video link below.
I am receiving emails on what to do next seeing as both Express and American Eagle have spiked higher amid shout outs to “record” Thanksgiving weekend sales. While Express did lower its 4Q12 guidance, but kept it solidly above a consensus that feared a worst case scenario (that assortment disappointments YTD would mitigate holiday promotions), my inclination is to exit Express and stay long American Eagle into #BlackCloud December. American Eagle's fundamentals support that view:
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•Significantly better gross margin story compared to Express (merchandise margin expansion + cost leverage).
•American Eagle is running inventory materially lower (-11% per square foot), essentially driving its business by chasing products into where the demand exists (bringing back some manufacturing to the U.S. has helped response times). To us, this shows the American Eagle buying teams are on the pulse of teen fashion preferences; to generate a +10% comp on this type of lean inventory is impressive.
•Controlled capex plans (actually declined in the quarter, why hello fiscal cliff) and apparent 4Q12 momentum suggests a meaningful 1H13 dividend hike from the company.
Video Link: http://finance.yahoo.com/blogs/breakout/store-wars-hot-not-mall-123158707.html