Urban Outfitters and American Eagle Dig Out of Trouble

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The collapse of American Apparel and Aeropostale are a sign that the teen clothing retailers have taken an awful beating. However, two others in the category that might of been crushed, American Eagle Outfitters Inc. (NYSE: AEO) and Urban Outfitters Inc. (NASDAQ: URBN), instead will sail into the holidays in good shape.

American Eagle Outfitters trades at just over $18, very close to the top of its 52-week range. At $39 a share, the same is true for Urban Outfitters. It is not clear why either has done so well, particularly since their failed rivals are not the only competition. Many would argue that the leader in the category is Abercrombie & Fitch Co. (NYSE: ANF), yet at $17 a share, it trades at the bottom of its 52-week range.

In its most recently reported quarter, American Eagle’s revenue rose a modest rose 3% to $823 million. Comparable store sales rose by the same percentage, but what was impressive was that this was on comparable store sales, which increased 11% in the same quarter a year ago. The trajectory over two years is amazing. And the per-share earnings rose from $0.17 to $0.23.

The increase at the top line for Urban Outfitters was also modest, but same-store sales and earnings were strong in its most recently reported quarter. The company owns three brands: Urban Outfitters, Anthropologie and Free People. Revenue across all of them grew from $867 million to $890 million. Same-store sales for the entire operation were up 1%, but they rose by 5% at the flagship brand. Urban Outfitters delivered at the bottom line with $0.66 per share, compared to $0.52 in the year-ago period.

Part of the success of the two companies may be discipline, including a lack of overbuilding. American Eagle has 1,000 stores and operates in the United States, Canada, China, the United Kingdom and Mexico. However, much of its activity overseas in based on online sales, which the company says brings in revenue from 81 countries.

Urban Outfitters has about 600 stores across its brands, and more specialty stores that are much smaller and presumably less expensive to operate. It also prides itself on its online operations.

Each company may benefit from the age of its customers. Younger people tend to be more comfortable shopping from smartphones and tablets. This cuts the need for aggressive brick-and-mortar expansion.

While the holidays will be a test for the two niche retailers, there are no signs they will not pass and continue to impress with their performances.