It's a tough crowd to please: teenagers.
Teens are often the hardest consumers to grab with shopping tastes as fickle as their moods. However, with the crucial back-to-school season approaching, strong momentum is necessary now to be best positioned to grab these key dollars, especially in apparel. As a season, back-to-school shopping ranks second behind the Christmas holidays in terms of consumer spending.
For teens, the biggest spending category is clothing, with about 21 percent of their budget going toward apparel, according to Piper Jaffray & Co.'s "Taking Stock With Teens" Spring 2013 survey. That's followed by food, which gets 18 percent of spending, and accessories and personal care with 10 percent of spending.
But after first-quarter earnings, a number of teen retailers have fallen off the honor roll with investors, while others are moving up on the grading scale.
Abercrombie & Fitch, Aeropostale and American Eagle all posted disappointing results for the period. Same-store sales were down 15 percent, 14 percent and 5 percent respectively. A common theme has been for retailers to blame poor weather and economic conditions for weaker-than-expected results, but that's only part of the story. Piper Jaffray's survey results reveal teenagers do plan to spend, albeit less than in the last two seasons, so grabbing those dollars will be more challenging this time around.
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While comments from a seven-year-old interview with Abercrombie CEO Mike Jeffries caused a stir on social media during the quarter, the retailer's disappointing results were more a result of inventory issues, including spring merchandise delivery delays, as well as softness in Europe rather than consumer backlash. In that controversial interview, Jeffries was quoted as saying Abercrombie goes "after the cool kids," and said: "a lot of people don't belong, and they can't belong. Are we exclusionary? Absolutely."
Although inventory and economic strain in Europe may indeed be an issue for the retailer, there also is some reason to suspect the brand has fallen out of favor with teens in general. Among the 5,200 teenagers, Piper Jaffray surveyed Abercrombie & Fitch and its Hollister brand ranked No. 2 and No. 3 for brands females no longer wear. For the males, Abercrombie's Hollister brand was the No. 1 brand no longer worn. For the first quarter, Abercrombie & Fitch's same-store sales fell 13 percent, and its Hollister brand saw same-store sales down 18 percent.
But Wells Fargo retail analyst Paul Lejuez isn't giving up on Abercrombie & Fitch yet. In a note to clients, Lejuez notes both positives and negatives for the retailer, but says ultimately "when we weigh the good with the bad, we still come out positive on ANF's risk/reward."
Aeropostale also landed on both gender's lists as a brand that's is no longer worn, Piper Jaffray said. The brand was No. 1 on the list for females and No. 2 for males. This is especially discouraging for the retailer because there's a high rate of correlation between spring and back-to-school shopping. Aeropostale has increased its promotions to clear merchandise, but neither the prices nor the fashion is resonating. Of the 25 analysts Thomson Reuters surveyed with Aeropostale coverage, 14 have "hold" ratings on the stock.
Over at American Eagle, it is a different story. The brand is resonating with teens, but it's disappointing investors. Piper Jaffray's survey ranked the retailer as the second favorite clothing brand for average-income teens, and the third favorite brand for upper-income teens. Still, the retailer has some work to do to close the gap between consumer preference and its financial results. The retailer's first-quarter earnings fell more than 18 percent and net sales fell 4.1 percent over first-quarter 2012. Shares have fallen 5 percent so far in 2013 compared to the S&P Retail Index's 21-percent gain over the same time period.
There are still analysts who are willing to give American Eagle the benefit of the doubt. UBS analyst Roxanne Meyer wrote: "our view of AEO's product remains positive and comps have improved since April; second-quarter outlook seems conservative."
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Although Jefferies' Randal Konik has a "hold" on shares, he has a positive outlook on American Eagle. "Last year American Eagle had strong momentum and significant market share gains. We believe trends have somewhat stabilized early in 2Q." Konik also said he expects AEO management has made positive strides when it comes to streamlining operations, improving the product and marketing.
While it's not traditionally thought of as a "teen" brand, Nike again takes top honors as the top clothing brand preference for both genders in both the average and upper income groups, Piper Jaffray said. Nike has been the No. 1 most preferred clothing brand for the upper-income teen for the last five consecutive surveys. For the average-income teen, Nike has been No. 1 in the last three of four surveys. Action-sport retailers like Dick's Sporting Goods are just one beneficiary of the Nike craze, as 17 percent of the retailer's sales are Nike products.
Urban Outfitters, which operates brands such as Anthropologie, Free People, BHLDN and Terrain, is a specialty retailer that's been making strides with investors and consumers. It may not typically be considered a core teen retailer, but perhaps it should be. Piper Jaffray notes Urban Outfitters is "focused on an older customer, but a perennial top ten" for teens, particularly for the upper-income teen group. The specialty retailer is a name praised by analysts for its so-called omnichannel success, which refers to its ability to integrate its digital and traditional retailer offerings.
KeyBanc analyst Ed Yruma said Urban Outfitter's direct-to-consumer sales (online and catalog) are the key growth driver in the near-term, while UBS' Meyer cites the retailer's direct-to-consumer business and its omnichannel platform along with new stores and product expansion as the keys to its future success.
Fast-fashion teen retailer Forever 21 is the third favorite clothing brand among teens in the Piper Jaffray survey. While the retailer is private, it's rising popularity shouldn't be ignored. The retailer now has 450 stores in the United States as well as an international presence with locations in Europe and China. Bank of America estimates Forever 21 has sales upwards of $3.5 billion, which is larger than Aeropostale's annual revenue, slightly smaller than Abercrombie, but about equal American Eagle's annual sales. Forever 21 is known for its huge selection and inventory and low prices, both traits that make a difference competitively.
Beyond keeping up with changing fashion preferences, retailers have had to plow resources into amping up online offerings. Spring 2012 was the first in Piper Jaffray's survey history where the respondents that said they preferred to shop online or at outlets outpaced those who shop at specialty retailers. The preference for those channels has increased ever since. If you think older consumers expect a seamless shopping experience between online, mobile and brick-and-mortar retail, just imagine a teen's impatience if a retailer's website or app doesn't deliver.
-By CNBC's Courtney Reagan. Follow her on Twitter @CourtReagan.