FBR Comments On Specialty Retailers

In a research note released Thursday, FBR & Co. analyst Susan Anderson commented on the specialty retail and apparel industry.

She called inventory levels poor but improving, raised the target on Abercrombie & Fitch (NYSE: ANF), called Hanes (NYSE: HBI) best positioned, and is concerned with Express (NYSE: EXPR).

Inventories improved at 1Q14-end with a deceleration to 10.7% growth vs. 13.5% in the fourth quarter of 2013.

The analyst believes that Abercrombie had the most improved inventory levels, and believes that it is doing a better job on product.

In addition, the analyst believes that Express had the least favorable inventory change; the primary reason for the weakness was due to a weakness in assortment.

The teen retailers had the most improved inventory spreads, which includes Abercrombie, Aeropostale (NYSE: ARO), American Eagle (NYSE: AEO).

Sales in the months of May and June tend to be better than expected, as better weather, better mall traffic and pent-up demand tend to drive up sales.

“Improved inventory positions could lead to a more favorable promo environment, though we are still cautious on retailers' ability to quickly pull back on promos on a YOY basis given consumers' apparent reliance on promos.”

Shares of Abercrombie, Express, Aeropostale and American Eagle were down one percent, 1.5 percent, 1.5 percent,and 2.5 percent, respectively, on Thursday.