Urban Outfitters, Inc. (URBN), American Eagle Outfitters (AEO): This Apparel Retailer Continues to Impress

In the first quarter, American Eagle Outfitters (NYSE:AEO) reported numbers that came in short of last year’s results. Net profit was $28 million compared to $40 million in the prior year. Net revenue fell 4%. Sales in stores open at least a year fell 5%. A Citigroup Inc (NYSE:C) investment research analyst just downgraded American Eagle Outfitters (NYSE:AEO) citing increased competition that could lead to market share loss. I concur with this assessment and would pass on owning shares.

Another competitor is Abercrombie & Fitch Co. (NYSE:ANF) . The retailer is best known for its preppy casual clothes that appeal to teenagers. The problem for Abercrombie & Fitch Co. (NYSE:ANF) is that preppy is out and hip is in. Tastes have changed and customers are trending toward brands like Urban Outfitters that are seen as being more hip.

The second problem for Abercrombie & Fitch Co. (NYSE:ANF) is that it realizes this and has made an attempt at changing. The problem is now it has alienated its core customer base that hate the brand’s new styles. The brand’s designers have yet to figure out a way to combine preppy and hip.

As a result of these problems, Abercrombie & Fitch Co. (NYSE:ANF) missed earnings expectations in the first quarter. Revenue fell 9% and comparable-store sales dropped 17%. The company lowered its full-year guidance and expects comparable-store sales to continue declining. Until comparable-store sales turnaround, I see further weakness in Abercrombie & Fitch Co. (NYSE:ANF) shares.

Foolish assessment

Urban Outfitters looks to be the place to be among these three apparel retailers. The company is executing is business plan and growing sales. That is a recipe for success and explains why Urban Outfitters has outperformed the market and shares are up over 44% in the past year.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Apparel Retailer Continues to Impress originally appeared on Fool.com is written by Mark Yagalla.

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