By Khadeeja Safdar 

When Urban Outfitters Inc. and Aéropostale Inc. report holiday-season earnings, investors will be looking for signs of a turnaround in the struggling teen-retail sector.

Store chains catering to teens have been hard hit in the past few years by declining mall traffic, changing tastes that eschew logo-laden clothing and fierce competition from fast-fashion players such as Forever 21 Inc. and Hennes & Mauritz AB. To cope, some retailers have closed U.S. stores, cut costs and pushed deeper into international markets. But there are some signs of a pickup.

In the past week, Abercrombie & Fitch Co. registered its first same-store sales gain in more than three years during the quarter ended Jan. 30, and American Eagle Outfitters Inc. posted higher sales amid progress on improving merchandise and controlling inventory levels.

Many analysts aren't convinced yet that a turnaround will hold. Pacific Sunwear of California Inc., a retailer with surf-inspired clothing on Friday hired financial advisers to consider its options including a debt reorganization under chapter 11 protection, according to people familiar with the situation.

"Some of these teen players are recovering from the dramatic erosion of productivity," said Credit Suisse analyst Christian Buss. "But their business remains challenged--just slightly less challenged than the year before."

Zumiez Inc., which sells action-sports clothing, is expected to report earnings on Thursday and teen retailer Buckle, Inc. is scheduled to release results on Friday.

Analysts forecast Aéropostale sales of $521 million for the quarter, down 12% from $594 million in the same quarter a year earlier, but its return to profitability is still in question. In January, it said it planned to eliminate about 100 jobs as part of an effort to lower expenses by $40 million a year.

The retailer has reported two consecutive years of losses. Its cash position fell each quarter for the past year and ended October at $42 million. The company said it would report fourth-quarter results on March 17 after pushing it back a week.

For Urban Outfitters, analysts forecast fourth-quarter sales of $1 billion, flat from a year ago, and earnings of 56 cents a share down from 60 cents in the same period last year.

The retailer, which has more varied product offerings than many of its peers and continues to expand its store base unlike its rivals, reported sales figures last month, showing a 2% sales decline at existing stores in the three months ending Jan. 31. Its earnings call with management is scheduled for Monday.

"Urban Outfitters is looking for ways to increase its relevance to customers, and customers are looking to go into stores that have experiences," said Oliver Chen, an analyst at Cowen & Co.

Urban Outfitters, which also owns the Anthropologie and Free People brands, made the unusual move of buying a restaurant group. In November, it announced plans to acquire Philadelphia's Vetri Family group of restaurants as a way to capture increasing consumer spending on casual dining.

The issue for the sector's retailers is they may not be adapting fast enough to satisfy the fickle tastes of teenage shoppers. Outside Aeropostale's store in New York's Times Square, Pauline Caspar, 18 years old, said brand names splashed across tops and sweatshirts immediately catch her attention and put her off. "It always says Aéropostale as if you are advertising for them," she said.

Mariana Rose, 18, shopping at an American Eagle store nearby, said she prefers having different options for every season. "Abercrombie and American Eagle have their own style--it never changes," she said. "I only go there for basics, and that's it."

--The Week Ahead looks at coming corporate events.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

March 05, 2016 05:44 ET (10:44 GMT)

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