Aerie and Hollister are running laps around their parent brands, and Wall Street is doubling down on their huge potential (AEO, ANF)

American Eagle‘s Aerie and Abercrombie & Fitch‘s Hollister brands have long been seen as growth engines for their parent companies.
Recently released earnings results are garnering serious praise on Wall Street, with one retail analyst pointing to a "tipping point" for Aerie’s growth.
Watch American Eagle and Abercrombie & Fitch trade in real-time.

Aerie, the popular lingerie business under American Eagle Outfitters‘ umbrella, and Hollister, the beachy brand under Abercrombie & Fitch, are gaining recognition as two high-growth apparel segments outpacing their legacy companies’ namesake brands.

"Holy Hollister," Paul Lejuez, an analyst at Citi, wrote in a report out Wednesday, following Abercrombie’s earnings results that showed its Hollister unit’s 6% quarterly comparable sales growth far outpaced the 2% decline at its namesake brand.

"While A&F comped down 2% overall, product issues seem relatively contained, and given the clear momentum at Hollister, a potential turnaround at A&F represents a possible added bonus."

Lejuez, who covers the retail space, was similarly optimistic about the lingerie brand Aerie’s showing when American Eagle Outfitters released their quarterly numbers late Wednesday. "Aerie Killing It, and Really Starting to Matter," he titled his report. Aerie’s comparable sales grew 23% last quarter, while American Eagle’s edged up 3%.

"Aerie is reaching a tipping point," Lejuez wrote, as fourth-quarter comparable sales jumped by 23%, contributing 300 basis points to American Eagle’s total quarterly comparable sales. He estimated Aerie is alone worth around $2 billion.

While both Hollister and Aerie have long been deemed standout growth engines for their respective parent companies, their performances at a difficult moment for brick-and-mortar retailers are garnering more serious praise from major Wall Street banks.

Hollister’s same-store sales results are "outperforming the broader mall backdrop," Matthew Boss, an analyst at JP Morgan, wrote in a note to clients on Thursday. He upped rating on Abercrombie from "underweight" to "neutral," and hiked his price target from $19 to $27 a share.

Meanwhile, Bank of America Merrill Lynch pointed specifically to Aerie and denim strength as having been American Eagle Outfitter’s fourth-quarter highlights, and noted Aerie reported "strong growth despite reducing promotions."

On Thursday, American Eagle shares fell after its first-quarter guidance fell short of analysts’ expectations. But, Kat Fitzsimons, an analyst at RBC Capital Markets, said that Aerie’s growth is American Eagle’s "focus" for 2019. She maintained her bullish stance on the company’s shares.

"Pedal being pushed on aerie growth with 60-75 openings in 2019 (inc 35-40 stand-alones and balance side by sides)," Fitzsimons wrote in a note to clients.

She was similarly optimistic about Hollister’s performance detailed in Abercrombie’s earnings report, and bumped her price target on the name up from $24 to $27 a share.

The two companies’ respective results come the week after Gap said it would spin Old Navy off into a separate public company, a plan that drew widespread praise from analysts who have viewed Old Navy as a growth driver for its parent brand — not dissimilar to Hollister and Aerie’s relationships to their parent companies.

Dana Telsey, the CEO and chief research officer of Telsey Advisory Group, a New York-based brokerage firm focused on the consumer space, told Markets Insider last week that Gap’s Old Navy spin off might influence Abercrombie and American Eagle’s decisions with their own high-growth units.

More broadly, the two stocks have traded quite differently over the short- and long-term.

Over the past three months, Abercrombie has gained 37% — aided by their post-earnings jump this week — while American Eagle has risen just 10%.

Going back three years, however, Abercrombie has lost 20%, while American Eagle has surged 33%.

Now read more retail coverage from Markets Insider and Business Insider:

Abercrombie soars to a 7-month high after delivering strong earnings; plans to close up to 40 stores this year

‘Let the disruption continue’: American Eagle exec says the brand is primed to capitalize on the recent wave of store closings

Abercrombie & Fitch plans to close as many as 40 stores in 2019

NOW WATCH: Here’s how North Korea’s Kim Jong Un became one of the world’s scariest dictators