Ms. Tsai: I cover nine names, with two buys and the rest are neutrals. The two buys are American Eagle (AEO) and Aeropostale (ARO). I recently upgraded American Eagle. Right now, as we look towards the back half of the year, I think companies are feeling more confident — though not necessarily from a top-line perspective, as top-line growth continues to be challenging. Consumers are cautious on how they spend their money; they are looking for values and responding to sales. I expect this to continue through the back-to-school and holiday shopping periods. However, unlike last year, retailers are a lot better prepared. At this time last year, retailers did not have their inventories aligned for the coming slowdown and many ran into trouble and had to discount heavily to sell through their inventories. Now inventories are a lot better aligned with where sales are trending.
TWST: What are your expectations for back-to-school?
Ms. Tsai: Right now, general expectations are really low, in part because Labor
Day is later this year. A lot of back-to-school shopping will happen in
September, which may hurt August same-store sales (SSS). Still, I think some
retailers are seeing some pockets of improvement, and relative to those very low
expectations, I think it could end up being a little bit better than expected
for some retailers. I think for those retailers, you're seeing glimpses of that
in their recently reported financial results and 3Q preliminary outlook.
Tickers included in this excerpt: AEO, ANF, ARO, DRBN, GPS, JCP, PSUN, TWB
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