For Specialty Retail, The 'Real Test' Comes In The Fourth Quarter

In a report published Tuesday, Morgan Stanley analyst Kimberly Greenberger discussed the Specialty Retail group ahead of second quarter earnings.According to Greenberger, the group's first quarter earnings were characterized by "muted" top-line growth and "low-quality" earnings beats, despite some of the easiest comparisons in years. However, Specialty Retailers likely saw their sales trends improve in the most recent quarter given fewer weather headwinds and less of an impact from West Coast Port delays.Greenberger continued that the group will likely guide their third quarter to be in-line with expectations but if fundamental demand does not materialize in the third quarter, the likelihood of a full-year earnings per share guidance cut in November is likely. As such, the analyst noted her skepticism that retailers will be able to "comp the comp" in the "real test" fourth quarter when comparisons get meaningfully more difficult.Company Specific Commentary

American Eagle Outfitters (NYSE: AEO) should report a "relatively solid" earnings report on good product execution and lower discounting activity.

Abercrombie & Fitch Co. (NYSE: ANF)'s European recovery may not have materialized which may suggest "serious brand equity concerns internationally."

Aeropostale Inc (NYSE: ARO) needs to demonstrate a turnaround in the bottom half of 2015 otherwise the company's ability to renegotiate its revolver could be "compromised."

Gap Inc (NYSE: GPS) is unlikely to lower its full year guidance, but the analyst questions the sustainability of expense reductions to offset negative sales trends which "pose a threat" to 2016 estimates.

Lululemon Athletica inc. (NASDAQ: LULU) has the most near-term momentum heading into earnings and the company's high-single digit comp increase guidance "could prove conservative."

Tiffany & Co. (NYSE: TIF) likely benefited from increased activity in Europe and Japan while checks in Shanghai "suggested outperformance" while slowing US tourism spend remains a "wildcard."

Urban Outfitters, Inc. (NASDAQ: URBN)'s gross margins will be closely watched given "limited" near-term visibility on the company's various activities.