The Gap Inc. (GPS), Aeropostale, Inc. (ARO): Five Teen Retailers Vie for the Coveted Title of Miss Wall Street High

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This is a tale of five teenage girls at Wall Street High School. Each one was known for her clothes, and setting the standard for fashion at WSHS. And just like at every high school in America, there is a popularity contest and fierce rivalry between these frenemies. Each one wants to be crowned, “Miss Wall Street High,” but first she has to earn it with her quarterly earnings.

“I Like My Money Right Where I Can See It- Hanging in My Closet”- Carrie Bradshaw, Sex in the City

Strutting around the school in her jeans and striped shirts is The Gap Inc. (NYSE:GPS). She has a reason for her big toothy grin and confidence. After all, her latest numbers for first quarter showed increased net sales. Profits increased 7 percent to $3.73 billion compared with $3.49 billion for the first quarter last year.

The Gap Inc.

Same store sales were only up 2% compared to the 4% of last year’s same quarter. Net earnings were up $100 million, or 43%, compared to last year. Not a bad way to kick off the year. She sets the standard for American teen fashion, and she knows she is the frontrunner for the title of “Miss Wall Street High.”

All-American Rejects

The runner-up in this teen popularity contest goes to Aeropostale, Inc. (NYSE:ARO) where net sales decreased 9% to $452.3 million, from $497.2 million in the year ago period. Comparable sales, including the e-commerce channel, for the first quarter decreased 14%. Revenue decreased 43.3% to $452 million, down from $797.71 million in the previous quarter, proving that second place in the world of teens, really is not almost as good as first place. Whatever!

But the truth is, Aeropostale, Inc. (NYSE:ARO) isn’t really competition for The Gap Inc. (NYSE:GPS). After all, look at those numbers. Aeropostale, Inc. (NYSE:ARO) may be happy with her $452 million, but it’s nothing compared to Gap’s $3.73 billion. Aeropostale’s real competition for Miss Wall Street High is American Eagle Outfitters (NYSE:AEO). They look so similar on the outside that they are both forced to put their names on their shirts so people can tell them apart. No one ever mistakes them for the The Gap Inc. (NYSE:GPS). Like ever.

American Eagle Outfitters (NYSE:AEO) saw first-quarter profit fall like 30%, and same-store sales declined 5%. If she were a real teenage girl, she would run from the room sobbing, not just because last year in the comparable period, same-store sales increased 17%, but because while her numbers went down, Aeropostale, Inc. (NYSE:ARO)’s didn’t go down as much. But her teacher (Mrs. Lane Bryant), will pat her on the back and remind her, Aeropostale, Inc. (NYSE:ARO)’s comparable store sales went down 14%, and American Eagle Outfitters (NYSE:AEO)’s went up 17%! See! That’s something to smile about! But then American Eagle will point out that she doesn’t have any friends, and everyone likes The Gap Inc. (NYSE:GPS) better! And when American Eagle remembers her profit of $28 million, was down from $39.7 million, a year earlier, she will start crying on the plaid shirt she borrowed from her boyfriend all over again.

Living in a Material World

And then there is rue21, inc. (NASDAQ:RUE). Every school has one. She’s the pretty girl who always seems to have everything going for her. The rules never apply to her. She marches to the beat of the entire marching band percussion section that follows her around faithfully. Cool things just seemed to happen everywhere she goes. It’s so not fair! And while she’s no The Gap Inc. (NYSE:GPS), she has something that Aeropostale and American Eagle could only dream of- a 9% rise in net sales for the quarter. The other girls have no idea what people see in her. She’s just so different! And now, she’s leaving Wall Street High with a guy (private equity firm) called Apax Partners. He wants to buy her for $1.1 billion.

But all good drama queens have a Fool in the corner, commenting on her every move. And in this story, that Fool is Seth Jayson, who points out that over the past 12 months, rue21, inc. (NASDAQ:RUE) generated $14.9 million cash while bringing in net income of $43.9 million, only turning 1.6% of its revenue into free cash flow. Free cash flow lower than net income isn’t really what investors want to hear, and just may be a contributing factor as to why rue21, inc. (NASDAQ:RUE) is going private to an equity firm, where she will get a few business lessons and a makeover, and not staying at Wall Street High.

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