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American Eagle Outfitters: Outfitting Shareholders With Nothing

American Eagle Outfitters has floundered around for the past several years.

No clear viable direction by management has shareholders simply waiting for their money to come back.

Long-term investors should stay far, far away from American Eagle Outfitters.

The retail industry is characterized by perhaps the most intense competition across industries. Companies go boom and bust all the time, and while the rewards are certainly high (e.g. Nike, Inc. (NYSE: NKE)), the risk is much, much greater. Investors who invest in a retail company must have extremely high conviction in their investment decisions, and they must be prepared to write down their investments to zero if things don't work out. The dynamics of this industry are strongly determined by price and brand, and not so much by innovation. Companies create trends almost as much as customers define them, and companies can implode simply because they picked the wrong trend or they picked the right trend at the wrong time.

Furthermore, with low barriers to entry and relatively low sunk costs to enter, competitors can enter in pretty much on a hit-and-run basis, seizing market share and undercutting the prices of incumbents. Make no mistake, this industry is vicious, and any investor worth his or her investment acumen would do well to tread very carefully.

That being said, there are a number of companies worth...