Vera Bradley, Inc. (VRA), Aeropostale, Inc. (ARO): For Value Investors, Deep Bargains In This Ignored Sector

American Eagle Outfitters (NYSE:AEO) — which pays a 3.4% dividend — has already cut its share count from 233 million in fiscal 2006 to a recent 196 million, and current share buybacks should push that figure yet lower.

Moreover, even as American Eagle Outfitters (NYSE:AEO)’s recent performance has been poor relative to its own track record, the company still is posting gross margins nicely higher than rivals such as Aeropostale, Inc. (NYSE:ARO). Goldman Sachs anticipates 35% gross margins this year, compared with 20% for Aeropostale.

Simply put, AEO can handle price wars and Aeropostale, Inc. (NYSE:ARO) cannot, which means that AEO can make life really miserable for its rival during this upcoming holiday season, forcing Aeropostale to deeply retrench.

Risks to Consider: Keep an eye on back-to-school sales trends for these retailers. They are likely to be tepid at best and could pressure even top-performing retailers such as The Gap Inc. (NYSE:GPS).

Action to Take –> Looking ahead, the clouds hanging over teen retail spending as the economy strengthens, and American Eagle Outfitters (NYSE:AEO) would likely be a key beneficiary of such a rebound.

Investors should also brush up on another lagging retail stock: Vera Bradley, Inc. (NASDAQ:VRA), which has fallen from $50 in early 2011 to a recent $20 on the heels of mediocre sales growth and concerns about rising inventory. Notably, profits forecasts for both this year and next have only come down by a modest amount over the past 90 days. Also, the retailer is financially healthy, reasonably valued (trading at 10 times projected fiscal 2015 profits) and likely to see a sales boost from a resurgent U.S. economy.

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