Widlitz: Yes, Teen Retail Is Still a Mess

As I was standing on the NYSE floor yesterday, talking about teen-retail disappointments on CNBC, I had a realization. I have been a broken record for the past several years, repeating a constant theme: Stay away from the teen space. Indeed, for years now -- and despite what the companies have told you -- teen retailers have perpetually remained in a vicious cycle of bloated inventory, fashion misses and a consumer that won't consider shopping at the mall before "50% off" signs appear.

Last night provided only the most recent example. American Eagle (AEO) reported a comparable-store sales decline of 7%, as anticipated, and guidance was well below what the Street is seeking. Expect negative high-single-digit comps for the foreseeable future, as well. With inventories up in the high single digits, too, we can put two and two together: These numbers clearly equal more margin degradation. In the fiscal fourth quarter, American Eagle's gross margin declined 900-plus basis points year over year, and such numbers are clearly not behind us.

So be careful. The sell side may tell you to be optimistic about the back half of the year, "when" inventories are in better shape, and "when" margins should bottom out. But I ask, why should you believe in a back-half story?

Here are five reasons you should avoid the back-half story trap.

1. The teen space is still well over-stored. Yes, companies are closing stores, but not nearly enough capacity is being taken offline.

2. Don't listen to the 'shift-online' excuse. Growth in Internet shopping this holiday season did not make a dent in comps declines at bricks-and-mortar stores. By the way, teen retailers will now be disclosing less information about online penetration and growth. That should tell you something.

If you liked this article you might like

Amazon Can't Even Be Stopped By a Massive Hurricane

Play Defense, Play the Dollar: Cramer's 'Mad Money' Recap (Tuesday 8/29/17)

Jackson Hole and a Solar Eclipse -- Week in Review

Market Rally Fades as Dow, S&P 500 and Nasdaq Finish Lower

Wall Street Holds Lower as Consumer, Defense Names Decline