Consumer Nation

Tough Times for Teen Apparel Retailers


Analysts are expecting a late start to the back-to-school shopping season, and that means that retail sales reports for July, which are due out Thursday morning, will likely be weak, especially for those who sell clothing for teens.

According to analysts surveyed by Thomson Reuters, retail sales could fall 5.0 percent from year-ago levels. That is roughly equal with June's decline and a sign that consumer demand is still languishing.

Shoppers are continuing to stick to the essentials. What's more, many so-called back-to-school tax holidays have been shifted from July to August, and that means consumers will be delaying purchases on clothing.

Overall the National Retail Federation expects that back-to-school sales will be down about 8 percent this year.

This trend has put teen apparel retailers such as American Eagle Outfitters

, Zumiez, and Aeropostale

in the spotlight.

Investing in Discount Retailers

"I think the teen retailers were the last to really fall off the cliff when the economy slowed down, and this is probably contrary to popular belief, but I think they will be the first to come out of it," said Needham & Co. analyst Christine Chen."...Teens are the biggest shoppers out there, unemployment for them might be up, but there are lots of new fashion trends that are emerging, key must-have items that will get kids to go to the stores and buy those items."

This includes the boyfriend blazer, boyfriend jeans and the plaid shirt, which will be popular when teens head back-to-school.

Chen likes stocks such as Urban Outfitters and Aeropostale. (To hear more from Chen, click here.)

Aeropostale, according to Thomson Reuters, is expected to avoid the steep decline in same-store sales expected across much of the teen apparel sector.

To win with teens, retailers need to provide value, promotion, and "newness," says Brian Tunick, J.P. Morgan specialty retailer analyst. He also favors Aeropostale, but also likes the Gap and Hot Topic.

Aeropostale stole customers away from the former teen favorite Abercrombie's by offering fun fashion at more affordable prices.

Abercrombie's sales are expected to be down 26.9 percent, according to Thomson Reuters.

Department stores such as J.C. Penney , Nordstrom and Macy's are all looking for sales declines of more than 10 percent, according to analyst estimates.

Even discounters will see steep declines due to lower gasoline prices, which inflated their sales in the year ago period. BJ's Wholesale is expected to post a sales decline of 6.5 percent, Costco sales may fall 6.7 percent, and Target's sales may be down 5.8 percent, according to Thomson Reuters estimates.

"People are really looking forward to 2010, and expectations have been low for a while, and meeting expectations has made the stocks go up," said Erika Maschmeyer, an analyst at Baird.

Maschmeyer favors Nordstrom and Urban Outfitters.

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