Brian Tunick, senior retail analyst at JPMorgan, discusses three major teen retailers that will face even tougher times ahead.
While retailers are generally up this year –and well above the market as whole, too – some major teen retailers are getting clobbered. And, says one noted retail analyst, it may not get better for a little while longer.
One measure of the general health of retail stocks is the SPDR S&P Retail ETF (the XRT). It's up nearly 36% this year alone, compared to 24% for the S&P 500 index. But, the good fortune isn't the same for some of its components, particularly three focusing on teen clothing and apparel.
So far this year, American Eagle, Aeropostale, and Abercrombie & Fitch have each fallen more than 20%. Their big drop into negative territory happened over the summer when sales came in worse than anticipated.
Brian Tunick, senior retail analyst at JPMorgan, believes these stocks will continue to face tough times ahead. "We still think that there's downwards earnings risk," says Tunick. "These stocks obviously have been woeful, significantly underperforming the rest of retail and both the S&P and Russell 2000. With the amount of earnings revisions, we've had 40% cuts to what those companies were going to make this year. And, we still think 2014 consensus numbers are too high."
But, that doesn't mean Tunick thinks the year ahead will be entirely bad for the companies, though. "We're telling investors, let's get more earnings cuts out of the way for the fourth quarter and next year and then we'll set up for maybe a seasonal trade beginning in January through April where some of these names could bounce 15% to 20%," says Tunick.
To see what multi-billion dollar obstacle Tunick believes is in store for these retailers this holiday season as well as what other companies threaten them in the long-term, watch the video above.
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[Disclosures: JP Morgan has/had the following relationship in the last 12 months:
Client: Abercrombie & Fitch, Aeropostal, American Eagle Outfitters
Client/Non-Investment Banking, Securities Related: Abercrombie & Fitch, American Eagle Outfitters
Client/Non-Securities Related: Abercrombie & Fitch, American Eagle Outfitters
Investment Banking (next 3 months): Abercrombie & Fitch Non-Investment Banking Compensation: Abercrombie & Fitch, American Eagle Outfitters
Market Maker: American Eagle Outfitters]
- American Eagle Outfitters