2 Retailers Iced on Revenue Disappointments

Lands' End, Inc. (LE) and American Eagle Outfitters (AEO) struggled after disappointing quarterly revenue

Dec 4, 2015 at 8:00 AM
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As earnings season is wrapping up, and the holiday shopping season is beginning, one sector that has recently been struggling is retail -- especially companies that depend on brick-and-mortar sales. Apparel sales have been particularly poor this year, with ShopperTrak founder Bill Martin pointing to "fewer available store hours on Thanksgiving day and a later Hanukah," and many companies turning to the same scapegoat -- the weather. Unseasonably warm weather this fall has left many retailers with a surplus of cold-weather clothing items and accessories. Two apparel retailers that just reported quarterly financials are Lands' End, Inc.(NASDAQ:LE) and American Eagle Outfitters (NYSE:AEO).

LE fell 8.3% to settle yesterday at $21.45, and touched an intraday low of $20.91 -- not far from the stock's all-time low of $20.71, seen in late August -- after reporting lackluster quarterly sales. CEO Federica Marchionni blamed the miss on "both external and internal factors." The report led Craig-Hallum to lower its price target on LE to $30 from $40.

On Wednesday, Lands' End, Inc. announced that it is launching a new label, "Lighthouse by Lands' End," which is described as "a new retail concept designed to enhance the customer experience" in stores. The company also participated in Giving Tuesday earlier this week, by pledging to donate a new coat to the National Coalition for the Homeless for each coat purchased on its website.

It has been a rough year on the charts for Lands' End, though, with the shares losing more than 60% of their value year-to-date. Traders aren't optimistic about the future, either. Currently almost 20% of the stock's available float is sold short -- an amount that would take a full five weeks of trading to cover, at LE's typical volumes.

And in the options pits, things don't look any rosier. LE's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 3.78 -- meaning nearly four puts have been bought for each call -- higher than 71% of readings over the past year.

AEO has been faring better over the course of the year -- up 10.4% in 2015 -- but its latest round of earnings sent the stock 3.1% lower to land at $15.32 Thursday. While earnings per share came in above expectations -- and were 59% higher than the same quarter last year -- revenue fell short of analysts' predictions. American Eagle Outfitters also announced that its interim CEO, Jay Schottenstein, has been given the position permanently.

Despite AEO's better performance as a whole, many traders continue to bet against the company. Nearly one-fourth of the stock's total available float is now sold short -- amounting to almost eight times AEO's average daily volume. Analysts are wary, too -- out of the 17 brokerages providing coverage, 10 give it a "buy" or better, compared to seven "holds" or worse.

Options traders were optimistic heading into earnings, though. On the ISE, CBOE, and PHLX, the stock's 50-day call/put volume ratio of 4.25 is higher than nearly three-fourths of readings from the past 12 months, indicating an uptick in bullish sentiment.


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