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) -- Teen retail stocks have generated fear, as investors worry the space will be among the hardest hit from headwinds in the second-half of the year.

"We are skeptical on virtually the entire domestic teen segment rebounding

in the second half even given materially easier comparisons, as we feel double-digit costing pressures, a highly competitive environment, weak economic performance by the core customer group and a consumer who has consistently been driven by price over perceived value could serve to retard any potential turnaround, even from a well-run company with a superior business model," Brean Murray analyst Eric Beder wrote in a note.

The teen space is generally considered a good gauge of discretionary spending, which makes this week's reaction to first-quarter results even more disconcerting.

The biggest question mark is how teen consumers will react to retailers attempting to pass along higher sourcing costs through raising ticket prices. This will be especially profound if gasoline prices continue to rise, leaving fewer discretionary funds for shoppers.

While for some teen retailers Wall Street's jitters are well warranted, others are merely being grouped along with the laggards.

Here then is a look at which teen retailers' first-quarter earnings results justify taking money off the table ... and which could be a mistake.

American Eagle Outfitters

American Eagle Outfitters'

(AEO) - Get Free Report

first-quarter profit missed estimates, and the company issued a lackluster forecast.

During the quarter, the company earned 13 cents on an adjusted basis, a penny shy of forecasts.

Looking ahead, American Eagle foresees profit of between 10 cents and 13 cents a share, compared with analysts' estimates of 13 cents.

"While it is encouraging that sales have picked up so far in the second quarter, American Eagle is anniversarying strong denim performance and we believe has a ways to go in fixing product, which is critical given assumed average unit retail increase into the second half as sourcing pressures mount," UBS analyst Roxanne Meyer wrote in a note.

American Eagle is currently in the process of searching for a new chief executive, after James O'Donnell announced his resignation earlier in the year. New leadership could be a catalyst for the company once a successor is named.

Pacific Sunwear of California

Pacific Sunwear of California


posted a smaller-than-expected loss in its first quarter, but the retailer's turnaround is still a big question mark.

The skate and surf inspired retailer lost 30 cents a share on an adjusted basis on revenue of $186 million. Wall Street predicted a loss of 33 cents a share on revenue of $180 million.

Same-store sales rose 1% during the quarter.

"Although we commend management on driving improved comparable sales trend, we remain wary that the positive

sales came at the expense of margin, as a result of increased promotional cadence," Janneu Capital Markets analyst Adrienne Tennant wrote in a note. "And we also point out that as a result of the net store closures, total sales continue to decline on a year-over-year basis."

PacSun foresees a second-quarter loss of between 22 cents and 29 cents a share, significantly more than analysts' estimates of a 19-cent loss.

On its call with Wall Street, PacSun suggested that same-store sales trends turned negative in early May due to challenging weather conditions.

"With the turn still in 'prove-it-to-me' mode, we choose to remain sidelined as we await consistent top-line improvement at healthier margins," Tennant wrote.




is the day's biggest loser, with shares plunging 16% to $17.94 in afternoon trading, after it issued a second-quarter outlook that severely fell short of Wall Street's estimates.

During the quarter a the value-priced teen retailer earned 20 cents a share on revenue of $469.2 million, while analysts were calling for a profit of 21 cents on revenue of $469.8 million.

Earlier in the month, Aeropostale warned investors that its first-quarter earnings would fall short of its previously issued forecast, and since then the stock has been hammered.

Looking ahead, Aeropostale predicts second-quarter earnings of between 11 cents and 16 cents a share, significantly below forecasts of 28 cents.

Aeropostale's margins have also collapsed from record highs of 17% to the 8.4% analysts now foresee in 2011.

Aeropostale fared the best of the teen retailers amid the recession, but there is now concern about the intensely promotional teen environment ongoing high teen unemployment and sourcing costs pressures that are facing the entire sector.

Part of the problem, albeit a smaller one, is also fashion misses, as Aeropostale started shifting its assortment to target a more sophisticated shopper, noted J.P. Morgan analyst Brian Tunick.

It appears Aeropostale has already given up market share to rival Abercrombie & Fitch, and Janney Capital Markets analyst Adrienne Tennant expects its peers to recapture more of the share Aeropostale stole during the economic downturn.

"We are also concerned that cost inflation may impact Aeropostale disproportionately versus higher-income target market retailers given their more price-sensitive customer," Tennant wrote.

Aeropostale has noted that it plans to increase ticket prices across several categories until the end of the year where it "deemed appropriate." But the company did acknowledge that it will promote when necessary.

But Needham analyst Christine Chen views Aeropostale's weakness as an opportunity to buy the stock, which she says is trading at a significant discount to the sector. "We believe Aeropostale is an attractive opportunity for value-oriented investors."

Chen notes that Aeropostale's back-to-school merchandise will be the first floor-set from its new senior vice president of merchandising, Todd Blumenthal. Coupled with easier comparisons, this could present an opportunity for improved sales trends in the second-half of the year, she writes.

Wet Seal

Wet Seal's

( WTSLA) income more than doubled in its first quarter, but shares of the company plunged 9.3% to $4.26 on Friday.

The company reported earnings of 8 cents a share on revenue of $156 million. While EPS fell in line with estimates, top-line results were just shy of Wall Street's outlook of $156.8 million. But the market isn't giving any free passes, despite what appears to be a turnaround story for Wet Seal in 2011.

Wet Seal forecast second-quarter profit between a penny and two cents a share, below analysts' estimates of 4 cents a share. But Beder says that he believes this guidance will prove conservative.

"In a season where retailer after retailer with tired brands and weak offering has collapsed, Wet Seal, after a number of trying years, has created a materially more relevant and robust business model for these trying inflationary times," Beder wrote in a note.

With Wet Seal being led by new management, after Susan McGalla was appointed CEO earlier in the year, the company outlined a vigorous program that Beder said will help it become even more relevant.

Wet Seal has also managed to remain one of the lowest cost mall-based chains even as it selectively raises prices. "We believe Wet Seal has the potential to continue to pass along pricing increases and maintain gross margin integrity," Beder wrote.

The company also announced it boosted its buyback plan by about 10% to $56.7 million.



(ZUMZ) - Get Free Report

is the only teen stock in the green Friday afternoon, after the skate- and surf-inspired retailer posted first-quarter results that topped Wall Street's forecast.

The company reversed its last year's loss, earning 6 cents a share on revenue of $105.9 million. Analysts were looking for a profit of 2 cents on revenue of $105 million.

While Zumiez's outlook was a bit lackluster, with management predicting EPS between 2 cents and 4 cents versus consensus estimates of 4 cents a share, it has become the norm for management to lowball expectations.

"We continue to believe Zumiez is a go-to store for its target market, and, as we have discussed, with competitor

Pacific Sunwear of California


targeting an older age range, we expect Zumiez to continue capturing market shares and its positive momentum into the second quarter," Tennant wrote in a note. "With additional store openings and a focus on full-price selling, we expect margin expansion to continue."

Zumiez is also relatively more immune to sourcing cost increases since nearly half of its merchandise offering is non-apparel, which could help it limit its reliance on pricey cotton, according to Tennant. In addition, 85% of the company is branded, which could make it a bit easier for Zumiez to pass along rising costs to shoppers.

Still, management has made clear that it will respond to customers' willingness to accept higher prices and react accordingly.

Shares of Zumiez gained 9% to $28.65 Friday afternoon.



(BKE) - Get Free Report

was a big disappointment, as its first-quarter profit missed expectations. As a result, shares of Buckle gave up more than 16% since it reported results Thursday morning.

During the quarter, the premium denim retailer earned $33.5 million, or 71 cents a share, compared with $30.1 million, or 64 cents, in the year-ago period. Revenue surged 12% to $240.1 million, while same-store sales grew 8%. Analysts were calling for a profit of 73 cents a share on revenue of $238.5 million.

As expected, Buckle did not provide second-quarter guidance.

"Although we continue to have longer-term concerns about the sustainability of operating margins over 20%, there is no denying the company's successful execution against difficult comparisons," Tennant wrote. "We choose to remain sidelined on shares at current levels until there is greater visibility on the company's ability to maintain peak metrics longer-term."

Hot Topic

Hot Topic

( HOTT) also sold off following its first-quarter results that just slightly beat forecast.

The teen retailer said Wednesday evening that it widened its loss to $7.7 million, or 17 cents a share, from a loss of $1.8 million, or 4 cents, in the year-ago period. On an adjusted basis, Hot Topic broke even, while analysts were calling for a loss of a penny.

Looking ahead, Hot Topic foresees a loss of 9 cents to 11 cents in its second quarter, which falls in-line with analysts' outlook.

Hot Topic is believed to be on the brink of a sustainable recovery, after it reported its first positive same-store sales number since the first quarter of 2009. The company has been moving away from its goth and punk image and adopting a more kid- and parent-friendly approach, which should allow it to attract a broader audience.

Abercrombie & Fitch

Abercrombie & Fitch

(ANF) - Get Free Report

reported one of the best first-quarter earnings reports out of the entire retail sector. The preppy apparel retailer swung to a bigger-than-expected profit during the three-month period, receiving a boost from sales overseas.

During the quarter, Abercrombie & Fitch earned $25.1 million, or 28 cents a share, compared with a loss of $11.8 million, or 13 cents, in the year-ago period. On an adjusted basis, the company earned 27 cents a share, easily topping analysts' estimates of 12 cents.

As previously reported, Abercrombie & Fitch sales grew 22% to $836.7 million, while same-store sales rose 10%.

Gross margin climbed to 65% from 62.7%.

"We continue to view Abercrombie & Fitch as a near-term winner in the teen niche based on better product, promotions and the ability to pass along price increases globally," UBS analyst Roxanne Meyer wrote in a note.

Shares of Abercrombie advanced about 4% earlier this week, but is shedding some of these gains Friday afternoon.

Meyer warns that the favorable impact of Abercrombie's international business on gross margins won't be enough going forward, as sourcing costs rise.

Abercrombie will also begin to raise ticket prices in its third quarter, which will most likely be accepted overseas, but remains a question mark in the U.S.

--Written by Jeanine Poggi in New York.

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