Ascena Retail Group Inc (ASNA): How Special is This Retailer?

It seems as though the brand needs to be reinvigorated. According to Alexa.com, the traffic rank for Aeropostale.com has dropped 490 spots from 6,806 to 7,296 over the past three months.  Because of a shrinking net profit line, the stock is trading at a whopping 96 times earnings.  The balance sheet is phenomenal, but with a fickle consumer and a miniscule profit margin, of 0.52%, this looks to be a high-risk investment.

Kohl’s Corporation (NYSE:KSS) isn’t a specialty retailer. Rather, it sells apparel and home products to all age groups. Revenue and earnings have consistently improved, its profit margin is solid at 5.09%, its debt management has been respectable, and the stock is only trading at 12 times earnings.  And it currently yields a 2.8% dividend.

On the other hand, Kohl’s also targets the middle-income consumer, which isn’t the place to be in today’s economy. According to Alexa.com, the global traffic ranking for Kohls.com has dropped 76 spots from No. 791 to No. 867 over the past three months. On the positive side, Kohl’s is likely to hold up best of the three aforementioned companies if the stock market suffers a steep drop. For example, during the recent financial crisis, Kohl’s “only” dropped 25%, whereas Aeropostale and Ascena plummeted approximately 50%.

Conclusion

Ascena Retail Group Inc (NASDAQ:ASNA) has a strong grasp on a niche, which is likely to lead to long-term success.  But its middle-class consumer is likely to face some difficult times and that’s due to a lack of wage growth, increased taxes, and rising mortgage rates. Ascena is also trading at 23 times earnings, making it expensive. Aeropostale is likely to bounce back at some point, but it looks to be high risk right now.

Ultimately, Kohl’s may be the safest option of the bunch.  It’s well diversified and it has been fairly resistant to a poor economy in the past.  Perhaps it’s time you took a deeper look.

The article How Special is This Retailer? originally appeared on Fool.com and is written by Dan Moskowitz.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.