The CEO of Urban Outfitters (URBN) summed up the holiday season appropriately: "This year's holiday environment in the fashion apparel industry was more promotional than any I can recall". While pricing and margin pressure may be here to stay, most retailers are surprising to the upside this am. However, I would characterize holiday results as "the less ugly are the new beautiful."
Let's start off with Urban Outfitters. Sure, the namesake chain turned comps positive this quarter for the first time this year, but don't forget that was against an incredibly easy comparison (-9%). I hate to be the Grinch, but while the street is celebrating a little better than consensus figures, I need to point out that two-year trends have actually remained the same (and actually decelerated at Free People). Urban is rolling out bigger stores, increasing the lower-margin home category mix and, by the way, have you noticed they are adding in commodity beauty products and trying to sell them at a premium price? And I won't bore you with my fast fashion thesis again (yes, Topshop conquering New York City).
Now, let's move on to the long-suffering core teen apparel space. American Eagle (AEO) reported comps decreased 2% -- better than expectations, but again I will point out the two-year trend, which went from -10% to -9%. While that is progress, I am not ready to pop the champagne. To be fair though, kudos to American Eagle management for controlling inventories and not giving away the promotional farm this year.
Again, the biggest challenge these names face is the relatively new emergence of fast fashion. At the end of the day, the only things that will save the American teen space are better products and faster lead times. That is, unless you are Aeropostale (ARO) -- in which case, too little too late is the headline.
But for now, investors are celebrating the New Beautiful.
