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) -- If the back-to-school selling season is any indication of holiday sales, this Christmas should be merry for teen retailers.


Abercrombie & Fitch

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set to kick off third-quarter earnings reports for the group on Tuesday, the focus will be on fourth-quarter outlooks, as investors seek color regarding the upcoming holiday season.

Teen retailers are often considered a gauge of discretionary spending, and as such will be viewed as a barometer for holiday spending.

Black Friday Teen Retail Stocks

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There will also be significant attention paid to rising costs in the sector, as cotton, labor and freight costs continue to increase. There are no signs that these surges are abating, with some forecasts calling for cotton to hit $2 a pound over the next three months.

Inventory also remains a concern, with analysts predicting that most retailers in the space will exhibit inventory growth that surpasses sales growth. "Based on our end of second-quarter inventory analysis across the sector, only 44% of retailers in our coverage universe exhibited sales growth faster than average inventory growth," Janney Capital Markets analyst Adrienne Tennant, wrote in a note. "We believe that across the sector, retailers are driving sales growth with margin-eroding promotions, and we believe this trend will continue into holiday."

Given all of this, here's a look at how teen retailers are poised heading into third-quarter earnings reports.

Abercrombie & Fitch

Abercrombie & Fitch

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is expected to deliver solid third-quarter results, due to a combination of well-executed promotions, improved merchandise and international growth.

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After its robust back-to-school results, analysts expect an optimistic tone from management heading into the fourth quarter.

In October, same-store sales grew 2%, falling short of Wall Street's estimates of a 5.6% jump. But quarterly revenue came in above forecast, growing 18% to $885.8 million, compared with outlook of $881.7 million. Comparable sales for the quarter rose 7%.

Abercrombie has not provided third-quarter estimates, but analysts are predicting a profit of 51 cents per share when the teen retailer reports results on Nov. 16.

American Eagle Outfitters

American Eagle Outfitters

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saw a remarkable improvement in the back-to-school season from what was a challenging spring and summer.

This is credited to a more desirable fashion assortment and leaner inventory.

"We remain optimistic heading into the fourth quarter, as American Eagle emphasizes driving profitable sales inclusive of defensive posturing from both an expense and inventory standpoint," Susquehanna analyst Thomas Filandro, wrote in a note.

The teen retailer is also repositioning its aerie brand, which Filandro expects will be a positive callout in the third quarter.

While American Eagle missed same-store sales estimates in October, the company upped its third-quarter outlook for the second-month in a row. American Eagle is now predicting profit in the range of 28 cents to 29 cents per share, up from prior estimates of 27 cents to 28 cents.

On average, analysts are calling for a profit of 29 cents a share on revenue of $748.1 millilon. American Eagle is scheduled to report third-quarter earnings on Nov. 18.




is starting to feel pressured as rivals lower price points closer to its sweet spot.

Still, analyst expect Aeropostale's business remains in positive sales territory, at least for now.

"We believe potential pressure should not impact third-quarter results, however, but may result in a longer-term concern.," Tennant wrote in a note.

Tennant says there is concern that fourth-quarter estimates are too high, and expects management will issue an outlook below Wall Street's forecast of $1.03 a share.

After reporting a disappointing decline in October same-store sales, management reiterated its third-quarter outlook, expecting to hit the midpoint of its guidance of 61 cents to 63 cents a share. The quarter's results will include an approximately 4 cent charge related to retirement plan of its chairman and former chief executive, Julian Geiger.

Aeropostale is scheduled to report third-quarter results on Nov. 16, and analysts are calling for a profit of 66 cents on revenue of $607.6 million.



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is expected to be the standout of the teen sector.

The skate and surf inspired retailer has been benefiting from a combination of a significant pop in transactions and improved product costs, Filandro said in a note. Catering to the action sports lifestyle sets the brand apart from the mall-based competition and bodes well for continued momentum into the holiday season.

After reporting a 21.5% surge in October same-store sales, Zumiez raised its guidance for a third time this quarter. The retailer is now forecasting earnings in the range of 36 cents to 37 cents a share, from prior outlook of 28 cents to 30 cents.

"We commend management's meticulous process of 'growing' with newer brands, and we believe that as competitors shift their merchandising strategy to target an older age group, Zumiez may well find itself the recipient of incremental share," Tennant wrote in a note. "Despite the relatively expensive valuation, we believe Zumiez will continue to be a 'beat-and-raise' earnings story into holiday."

Zumiez is set to report earnings on Dec. 1 and analysts forecast earnings of 37 cents on revenue of $133.8 million.



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held its ground during the back-to-school season, abstaining from resorting to price cuts to drive sales.

"Promotional levels continue to be controlled, which, by comparisons to other teen and young-adult retailers, may become more apparent as we head into the critical and highly promotional Black Friday weekend," Tennant wrote.

This move is expected to support third-quarter margins, but Filandro still foresees margins to contract below 2009 levels.

The premium-denim retailer has been incorporating more surf-inspired brands, which are gaining momentum.

Buckle may also be on the verge of issuing a special dividend or increasing its regular dividend, as its cash position builds, Filandro said.

The company has not issued third-quarter forecasts, but analysts are predicting a profit of 69 cents a share on revenue of $238 million. Buckle is scheduled to report earnings on Nov. 18.

Tennant said she believes Wall Street estimates have improved following October's better-than-expected comparable sales results.

Hot Topic

Don't expect a turn in

Hot Topic's

( HOTT) sales in its third-quarter.

The teen retailer continues to face difficult comparisons from last year's boost from


merchandise, which is expected to continue through December.

Hot Topic guided third-quarter earnings to the low end of its forecast in the range of 5 cents to 8 cents a share after same-store sales dropped 8.5% in October.

Tennant said she is concerned that fourth-quarter estimates are too high, and expects the company will provide guidance below Wall Street's forecast of 13 cents a share.

"We continue to remain concerned about the emergence of a new strategy that is moving more mainstream, and we believe same-store sales could remain in negative territory for the remainder of the year," Tennant wrote in a note.

Pacific Sunwear of California

Pacific Sunwear of California


is on the road to recovery.

With Christine Lee now heading up juniors merchandising and design following 20-years at

Urban Outfitters

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, there is a noticeable shift in merchandise.

Tennant said she expects to see the full effect of Lee's work in spring 2011, but already there has been a move to highlighting complete outfits, rather than top and bottom separates, as well as a new focus on targeting an older customer.

Still, this shift will take time. "While we have a very favorable view of the product, these product turns, especially those that target a new age range, take time and often the educational process to appeal to a new target market can be a slow and measured process," Tennant wrote.

Pacific Sunwear is forecasting a loss between 9 cents and 16 cents in the third quarter, with same-store sales declining between 4% and 9%.

The biggest focus will be on fourth-quarter same-store sales. Management said it will achieve positive fourth-quarter comparable sales. While Tennant believes the company is on track to meet this goal, it's not a definate.

Wet Seal

Wet Seal

( WTSLA) is expecting to be on the high-side of its third-quarter guidance.

The teen retailer saw its October same-store sales slip 0.7%, significantly better than the 3.8% decline analysts predicted.

Following better-than-expected results, Wet Seal said it now expects earnings to come in at the top of its guidance between 1 cent and 3 cents a share. This includes about a penny per share in writedowns that the company did not include in its initial forecast. Excluding the charges, management expects a profit of 4 cents a share, a penny better than Wall Street's guidance.

Wet Seal will report third-quarter results on Nov. 18.

-- Written by Jeanine Poggi in New York.

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