Aeropostale Losing Promotional Edge. Abercrombie, American Eagle, and Others Tearing Down Margins. But Aeropostale Flush With Cash.

Aeropostale is seriously losing its edge in the promotional business. Competition in the teen apparel industry is increasingly fierce and margins are under intense pressure as Abercrombie & Fitch and American Eagle Outfitters, among others, are embracing discounts and offering more clearance and promotional sales. In addition, cotton prices have rocketed upwards during recent years, and have only now started to show some signs of subsiding.

The stock has fallen below $12 per share recently and investors are anxiously awaiting its next earnings and sales numbers, as last quarter's were atrocious, with both margins and sales tumbling by double digits. So why would any investor still consider owning the company? They have piles of cash still left on their balance sheet, and have no long-term debt whatsoever. Why is no-debt significant? Because when the company makes a dollar in earnings, all of that earnings can be designated towards something that actually improves shareholder value, such as: share-buybacks, capital expenditures, expansion, or dividends to shareholders. In other words, the shareholders actually own the whole company, unlike many businesses, which are owned by shareholders and a conglomeration of banks and creditors.


Financially, the company is healthy, and they are still making a decent profit, so if next quarter's numbers reveal a bump up or stabilization of sales and revenues, this stock will be cheap, very cheap. But until then, fashion is a horribly fickle business and notoriously difficult for the Intelligent Investor to predict. The proof for this company will be in the sales data.

J. Crew Coming to Canada. Reitmans, Le Chateau, and Others Beware... Consumers are Fickle.

American clothing retailer J. Crew will be opening its first Canadian store this August. The new location will be in Toronto at the Yorkdale Shopping Centre. In addition to Target, there is going to be a slew of U.S. retailers heading north to take advantage of a more stable and seemingly robust consumer base.

Other Canadian clothing retailers like Reitmans, Joe Fresh, (TSE: RET) and Le Chateau (TSE: CTU.A) are really going to start feeling the pinch as there is only so much consumer spending power to go around in a country of 33 or so million people. Both stocks have been hammered as of late and could pose a potential buying opportunity to any adventuresome investors who dare to enter the clothing space, which is notorious for being fickle and difficult for investment consultants like myself to predict. To be sure, Reitmans has a large dividend of about 5 percent, but a clothing company can burn through money very quickly with advertising and price wars a constant threat.

So Intelligent Investors beware, another competitor in the clothing space means more hands in the consumers' pockets.

Happy investing, and for more info go to:

http://www.cbc.ca/news/business/story/2011/06/24/j-crew-toronto.html

Loblaws Brings Joe Fresh to Fifth Avenue: First Foray Into the United States in Years.

Loblaws (TSE:L) announced that it is opening four Joe Fresh branded stores in the United States. Joseph Mimran, the brand's founder, declared that many Americans have been requesting the introduction of the clothing line into the United States and thinks it will be a success. The flagship store will be located on Fifth Avenue in Manhattan, adjacent to the New York Public Library.

Historically, Canadian firms are very hesitant to expand into the United States, where competition is steep and competitors are well-heeled and have deep pockets. Loblaws has attempted to expand into the northern United States before, but retreated in the late eighties and early nineties after they decided to focus on expanding and perfecting their Canadian operations. This turned out to be a very wise move, as Wal-Mart and others entered the American market en-masse and brought profit margins tumbling down in the grocery sector. This time, however, Loblaws is entering on a very small scale and in an industry with much higher profit margins than the grocery sector.

Undoubtedly, the rationale for expanding the Joe Fresh line into the United States has less to do with generating a profit on the U.S. stores than it does with simply exposing the brand and Loblaws to an extensive amount of publicity from more fashion conscious consumers. The company has declared that it wants to achieve 1 billion dollars in annual sales soon, and it now appears that it is bent on achieving that goal.

In reality, few Canadian merchants have ever had any success in the United States. Lululemon (TSE:LLL) has had some, as has Tim Horton's (TSE:THI) now, but Canadian Tire (TSE:CTC.A) tried and failed miserably, as have countless others. Loblaws' decision to enter the market again will bring some bad news in the future as sales at the American Joe Fresh stores are probably not what is expected, but the recognition and marketing advantages that they gain from having a store on Fifth Avenue will bode very well for the clothing line and its status in its customer's eyes. As an investment, however, be careful of Loblaws. Debt levels are creeping higher, and many stores are disorganized and under-staffed, which will make competition with Metro (TSE:MRU.A), Sobeys (TSE:EMP.A), and Wal-Mart (NYSE:WMT) more difficult as time goes on.

For some more information on this news:
http://www.thestar.com/business/companies/article/943842--canadian-retailers-go-global

Happy Investing Intelligent Investors : )