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Forget American Apparel - Buy These 3 Retail Stocks Instead

Earlier this morning, the controversial clothing brand American Apparel ( APP ) has filed for bankruptcy protection. The overpriced and "trendy" clothing retailer's board approved the petition for Chapter 11 bankruptcy, which was filed in federal bankruptcy court in Delaware.

Per the New York Times , American Apparel's business has been crippled by larges debts, a swift drop in sales, employee tensions over unionization, and drawn out legal troubles with the retailer's disgraced founder, Dov Charney.

Charney's stake in the company, which he founded in 1989, was worth roughly $8.2 million as of Friday. His and all other shareholders stake has been wiped out due to the bankruptcy. American Apparel is now controlled by its creditors, which include Goldman Sachs ( GS ) and Standard General - Stand General being the hedge fund that is currently leading the RadioShack turnaround .

Here are some of the figures reported in the New York Times article:

"Under the financing agreement, five American Apparel bondholders would convert some $200 million in bonds into equity in the reorganized company. Participating bondholders would also provide $90 million in debtor-in-possession financing, as well as $70 million in new liquidity."

"The fresh financing would reduce American Apparel's debt to $120 million from $311 million, and its annual interest expenses would fall by $24 million, the company said. The participating bondholders are Standard General, Monarch Alternative Capital, Coliseum Capital, Goldman Sachs Asset Management and Pentwater Capital Management, all hedge funds or investment firms specializing in distressed debt. Together, they represent 95 percent of the retailer's secured lenders."

Since American Apparel is in a state of instability, let's examine 3 other retail stocks that may be a worthy addition to your portfolio.

1. Citi Trends Inc. ( CTRN )

Citi Trends is a retailer that sales value-priced apparel and accessories operating primarily in the South, Southeast, and Mid-Atlantic regions of the US. The retailer currently has a Zacks Rank #1 (Strong Buy). Its PE ratio holds a 20.89 value, and beat last quarter earnings by 109%.

According to their most recent earnings report , Citi Trends increased its net income by 76% in the year-over-year change during their fiscal first halves. If they continue this trend into the earnings quarter, Citi Trends will continue being a solid value pick.

2. Express Inc. ( EXPR )

Express is a retailer primarily located in malls across the US, and sell apparel and accessories for men and women. The retailer currently has a Zacks Rank #1 (Strong Buy), and a strong PE ratio value of 12.97.

Earnings over the past 4 quarters have increased consecutively for Express. Starting in the period ending in October 2014, the retailer outperformed the earning estimates by 6.25%, 6.52%, 57.14%, and most recently, 66.67%.

The holiday season is quickly approaching and Express should most likely see increases in revenue and earnings for the quarter. If the retailer again outperforms estimates and surprises by a value above 66.67%, investors will most likely be happy with their investment.

3. Foot Locker ( FL )

Foot Locker is by far the most recognizable sneaker retailer in the world. The retailer has a Zacks Rank #1 (Strong Buy), and a strong PE ratio value of 16.73.

Foot Locker hasn't missed an earnings estimate since the period ending in July 2013, demonstrating the company's stability over the past few years. Most recently, the retailer outperformed the earnings estimates by 21.74%.

Just as Express, the holiday season should suggest positive earnings for Foot Locker. Furthermore, the retailer's currently listed estimate for the period ending this month has been revised multiple times - each time an increase in the expectation.

Buying now may be the best time to purchase Foot Locker shares because another successful earning quarter may very well translate to a worthwhile investment.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

FOOT LOCKER INC (FL): Free Stock Analysis Report

CITI TRENDS INC (CTRN): Free Stock Analysis Report

EXPRESS INC (EXPR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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