be your own anaylistBy Jeanine Poggi,

NEW YORK -- Sell-side analysts are often criticized for acting too slowly in downgrading companies and lowering estimates, so it should come as no surprise to find retail analysts were late to the game this week with calls on Children's Place (PLCE) and American Eagle Outfitters (AEO).

For the most part, estimates on retail companies have not been altered since the third-quarter, as analysts have remained on the sidelines waiting to see how the holiday season would play out.

With the hype surrounding Black Friday, it appears analysts were ignoring one critical factor, not taking heavy discounts into account, says Brian Sozzi, RealMoney contributor and chief business officer at Nothing But Gold Productions.

"Analysts fell in love with sales and that merchandise was moving out the door in specialty retail, but consumers were buying more at a discount, pressuring operating margins," Sozzi said.

Children's Place was downgraded and its price target was lowered by Janney CapitalMarkets, FBR Capital Markets and Goldman Sachs, only after the company slashed its fourth-quarter outlook on Thursday.

It's no secret that the children's apparel retailer made some merchandising missteps, which forced them to rely on heavy discounts during the all-important holiday season. The company now expects fourth-quarter earnings in the range of 85 cents to 90 cents per share, from its previous guidance of $1.19 to $1.24.

As a result, Goldman Sachs downgraded the stock to "neutral" from "buy" today, while FBR Capital Markets and Janney Capital Market lowered earnings per share estimates. That's little help to investors who saw the stock drop from $53 to below $50 during Thursday's trading session.

American Eagle is another call analysts got wrong, according to Sozzi. Janney upgraded the stock just a day before the teen retailer cut its fourth-quarter outlook, which resulted in a major blow to the stock.

While American Eagle's same-store sales for combined November and December soared 12%, aggressive promotions weighed on margins. Eagle now foresees earnings in the range of 33 cents to 35 cents per share, from previous estimate of 40 cents to 44 cents.

The day before, Janney analyst Adrienne Tennant said in a note that American Eagle performed well during the holiday season and outperformed its peers. As a result, she raised her rating to "buy" from "neutral".

"We believe American Eagle Outfitters will be a winner in the teen space, driving [revenue] with promotions that we believe were all planned," Tennant wrote.

Even the credit ratings agencies have been slow to act. After Sears Holdings (SHLD) announced it was closing underperforming stores, the retailer was downgraded by Standard & Poor's two notches this week to CCC+ from B, or further into junk territory.

Sears has been under pressure for some time, but it took S&P this long -- and the announcement of store closures and profit warning -- to decide the flailing department store will "remain under pressure" in 2012.


Increase your money and finance knowledge from home

Investment Strategies

What's your investing game plan?

View Course »

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Harry Piels

We need another Cash for Clunkers program. This would jump- start a recovery , get rid of many old vehicles that gobble gas and pollute the air, and would help the vital auto industry. The spill-down would help the overall economy. Much of the revenue would be repaid from taxes badly needed by the states. A gradual withdrawl in a couple years with (presumed) recovery would be set for review. This is not the best way to create jobs but, it might ensure that progress made so far is not lost on European defaults.

January 08 2012 at 10:58 AM Report abuse +1 rate up rate down Reply
marie & michael

when prices go down sales increase.that is the way to stimulate the economy the only problem is, it does not stimulate the stock market when profits are lowered.try working for your money instead of investing and hoping others will make it for you.

January 07 2012 at 2:12 PM Report abuse -1 rate up rate down Reply
Cote Media

We need to support small businesses and technology to bounce back this economy, we at Cote Media in Red Bank NJ are helping to build small to medium sized businesses utilizing Social Media!! We create custom strategies for every client, we are not a SPAM and SCAM marketer. Give us a call at (732)-747-4300 and help us to continue growth on Main Street, because we all know that's where our economy must be the strongest!

January 07 2012 at 1:58 PM Report abuse -1 rate up rate down Reply

Save you time by not investing.....put your money under your mattress. That way, the Big Boys of Wall Street can't get their hands on it, like our pensions. Wouldn't put my money in stocks even if you paid me to.

January 07 2012 at 1:13 PM Report abuse -1 rate up rate down Reply

The majority of Stock analysts are just high paid talking heads ! They are part of the pump and dump strategy used by the financial community uses to part you from your money. That's why 85% of mutual funds don't even keep up with the stock indexes even though the turnover rate in most stock funds is 200% a year. When stocks go up, they have you buying and when are down, they have you selling flipping the money between you and their own accounts. 401k accounts especially are a ticket for them to rip you off. Take control and do your own investing. You will be better off in the long run.

January 07 2012 at 10:52 AM Report abuse +1 rate up rate down Reply

By the time we pay school taxes, county taxes, city taxes, state taxes, sales taxes, federal income taxes, social security taxes, medicare taxes, gasoline taxes, alcohol taxes, tobacco taxes, driver license taxes, vehicle taxes and probably a dozen other hidden taxes and fees, we don't pay too little in taxes. Our government is spending too much and you idiots are enabling them to continue to do so...

January 07 2012 at 10:09 AM Report abuse +1 rate up rate down Reply