An analyst on Wednesday said Aeropostale Inc. and Urban Outfitters Inc. are among the best-positioned teen retailers in a weak environment as he initiated coverage on the sector.
Aeropostale has fared better than some of its peers as consumers cut back amid a recession, because it emphasizes value and discounts such as 2-for-1 offers more than other teen retailers do.
"Our proprietary store checks indicate that higher relative traffic levels elucidate that this type of strategy works in this environment," said Keybanc Capital Markets analyst Edward Yruma, who assigned a "Buy" rating on the company.
He added that the pricing strategy gives New York-based Aeropostale an advantage over its peers for the next 12 to 18 months. He set a $24 12-month price target on the stock. Aeropostale shares shed five cents to $19.38 in morning trading.
He also gave a "Buy" rating to Urban Outfitters, due to room for growth for both its namesake and higher-priced Anthropologie stores.
In addition, the company has newer concepts like its Free People line, which offers bohemian-inspired style clothing, and Terrain, which offers home and gardening products and accessories, it can develop, Yruma added.
"We estimate that the company's current artillery of growth concepts provides at least five to six years of visible growth."
Urban Outfitters shares fell 76 cents, or 5.1 percent, to $14.04.
Meanwhile, he gave a "Hold" rating to American Apparel Inc. and Buckle Inc.
American Apparel, which sells T-shirts and other clothing, has an advantage because it manufactures its clothes in the U.S., which has become an "integral" part of the company's branding, Yruma said. But he added the company's "sexually charged" ads and corporate culture make it a riskier investment.
Buckle, which sells jeans and other attire, has benefited from a strong management team and fashion position compared with rivals, but it is facing difficult comparisons from a year ago.
Shares of American Apparel rose 6 cents to $2.49, while shares of Buckle fell $1.23, or 5.5 percent, to $21.35.
Yruma assigned an "Underweight" rating to Abercrombie & Fitch Co.. The retailer, which offers jeans, T-shirts and other clothing, has been dedicated to preserving its higher prices, which is hampering growth, Yruma said.
"We worry that premium pricing hampers sales in a tough macroeconomic environment," he wrote.
Abercrombie & Fitch shares slid 56 cents to $24.01.