Teen apparel retailers are finding decent grades hard to come
by heading into the back-to-school shopping season.
"Given the relatively weak data coming from the teen apparel
space for the second quarter, it suggests the back-to-school
selling season could be even more challenging," said Ken Perkins,
president of Retail Metrics.
Here's what's happened in the past week:
American Eagle Outfitters (
) raised a red flag on Aug. 5 by lowering its earnings outlook
for its just-ended second quarter, right as the back-to-school
selling season kicked off.
It said traffic was weak and sales and margins were below
expectations amid disappointing sales in the women's category.
Same-store sales dropped 7% from a year earlier.
On Thursday,Aeropostale (
) warned its second-quarter sales fell 6% overall and 15% at
stores open at least a year. It also lowered earnings guidance
for the quarter.
A Slow July
The same day, action-board retailerZumiez (
) and teen apparel chainBuckle (
) missed analysts' forecasts for July same-store sales.
Overall, says Perkins,
retailers' July sales
were soft. He's sticking to his prior forecast for a 2% to 3%
rise in same-store sales for the back-to-school season, which
runs from the end of July through mid-September, with the
potential to be "slightly below." Comps rose roughly 3.5% last
year at this time.
Recent announcements from the teen space signal a change in
where back-to-school budgets are being spent, says Michael
Niemira, chief economist at the International Council of Shopping
"The teen retailers are likely to see some weakness," he said.
"That business seemingly is shifting toward the discounters,
which suggests the consumer is more inclined to think about
basics and not fashion."
He cautions not to focus too much on the second quarter, given
signs the economy has firmed in the past couple of months. "That
would mean we should be more upbeat about back-to-school," he
Niemira is sticking to his forecast for a "relatively decent"
season. He sees a 3.1% rise in July through September sales at
family clothing, shoes, book and electronics stores, down from
last year's 3.6% gain.
"Over the long haul, that's not bad," he said.
The pace of consumer spending is lackluster, says Niemira.
Aggregate same-store sales growth for 125 stores that he tracks
has run a sluggish 1% to 1.5% the past few quarters.
"It is a highly competitive retail environment, which is
reflected in the fact you've seen ads related to back-to-school
showing up earlier, around the July Fourth holiday," Perkins
said. "That goes to show you retailers are competing for a slowly
growing spending pie."
Because income growth of mid- and low-income consumers has
been "almost nonexistent," apparel sales have been soft over the
past year, he noted. That's left consumers with little
discretionary income, and apparel spending has been "getting
crowded out" by increased sales of items like home
Footwear Still Fancied
Despite American Eagle's warning, said Perkins, "I expect
other retailers to be relatively strong in comparison,
particularly those that have more footwear and accessories
offerings." He cites retailers like athletic footwear and apparel
retailersFoot Locker (
) andFinish Line (FINL) as among those being strong.
Others are less sure.
"We have been cautious overall on back-to-school for some
time, but even more so now that we see what is happening in the
last week or so," said B. Riley & Co. analyst Jeff Van
Sinderen. "Our channel checks are coming back negative. We
believe that apparel, especially juniors (and) girls, is going to
be challenging for back-to-school. There will be more weakness
revealed among the retailers that sell to the back-to-school
Don't expect parents and kids to splurge on school supplies,
either, says Perkins. He doubts giant discountersWal-Mart Stores
(WMT) andTarget (TGT) will benefit as much from supply purchases
as they usually do. But they may do better than office supply
stores likeStaples (SPLS), he adds, and could see a "modest
boost" from tablet and smartphone sales.
Overall, it will be a "promotional" period, with retailers
competing for a back-to-school spending pie that isn't growing,
Perkins says consumers will shop for back-to-school late and
closer to their needs -- in the last two weeks in August and the
first two weeks in September.
When they shop, they'll go into stores with strict budgets and
shopping lists and look to buy merchandise only if it's on
Where are the bright spots? Van Sinderen saysUrban Outfitters
(URBN) is one of his top picks for back-to-school. The main Urban
Outfitters brand features merchandise and styles that are
generally on trend and differentiated from other youth retailers,
The retailer, which also operates the Anthropologie and Free
People chains, is expected to be a standout performer in the
third quarter, says Greg Harrison, senior research analyst at
Thomson Reuters. Analysts polled by his firm expect Urban's
third-quarter same-store sales to rise 6.6% from a year
Analysts also predict thatWet Seal (WTSL) will see a 5.5% jump
in Q3 same-store sales at its youth-oriented stores, which sell
trendy clothing and accessories.
The big spenders are likely to be households with annual
income of $100,000-plus, according to a July 19 ICSC-Goldman
Sachs survey. They plan to spend 35% more than the U.S. average,
"That's a big difference relative to last year's survey, which
showed they planned to spend 10% to 15% more than the average,"
he said. "It suggests the higher-end households will be where the
action will be."
In terms of shopping venues, discounters are expected to see a
greater share of spending than last year, says Niemira.
Brian Sozzi, CEO of Belus Capital Advisors, says the American
Eagle warning suggests teens may not gravitate to traditional
teen favorites like American Eagle, Aeropostale and Pacific
Sunwear ofCalifornia (PSUN). They may spend elsewhere, like
department storeMacy's (M), which he expects to have a good
Macy's strategy of localization and store
has helped it outperform some peers in its group.
The online channel, including brick-and-mortar retailers'
businesses on the Web, is also likely to see a bigger portion of
spending, says Niemira.
Online back-to-school dollar sales are expected to increase 3%
vs. a year earlier, with price and convenience being the main
motivators, according to a survey by research firm NPD Group.
Marshal Cohen, chief industry analyst at NPD, expects
retailers to have a "pretty decent" season. He sees "nice healthy
growth" of about 3% in back-to-school sales in August and
"What that tells me is the consumer is willing to go beyond
the necessities," he said.
It's a sign the consumer is feeling a little more comfortable
and is willing to spend, he adds.
Apparel, footwear, school bags, accessories and sports
equipment will be among the season's hot sellers, says Cohen.
In footwear, basketball sneakers fromNike (NKE) will be the
shoe of choice for teens, predicts Sozzi. You can find the Nike
shoes at retailers such as Foot Locker andDick's Sporting Goods
Tablets and smartphones will likely be key categories, adds
Perkins.Best Buy (BBY)will be "pulling out all the stops" to
devote space and advertising for these products.
He sees retailers' inventories in "pretty good shape" as they
head into the back-to-school season. So he doesn't expect fire
sales due to excess products on hand, though retailers will offer