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4 womens clothing stocks for happy holidays
Its never too early to start your holiday shopping. Here are four womens apparel retailers with the right mix of fashion, quality and value to pull in shoppers and make investors happy.
By Robert Walberg
Its late September, and Im already out in the malls scouting the retailers best positioned for the upcoming holiday season. With the economy on the mend, it promises to be a decent year for the nations retailers. One group that looks particularly promising is womens apparel. Though there is a lot of repetition among the stores, there are enough new concepts to drive higher sales.
The womens retail industry can be broken up by age of the targeted customer, with companies such as bebe stores (BEBE, news, msgs), Guess? (GES, news, msgs), Banana Republic, a division of The Gap (GPS, news, msgs), Limited Brands (LTD, news, msgs) and Arden B., a division of The Wet Seal (WTSLA, news, msgs), dominating the 18-35 set. Meanwhile, older women, generally defined as those between the ages of 30-60, are served by the likes of The Talbots (TLB, news, msgs), Chicos FAS (CHS, news, msgs), The J. Jill Group (JILL, news, msgs), Coldwater Creek (CWTR, news, msgs) and AnnTaylor Stores (ANN, news, msgs).
Lots of denim and fur for the younger crowd
For the younger set, here are the fashion trends worth noting this year: You are going to be seeing a lot of denim and fur, mostly of the rabbit variety. Clothes are also taking on a vintage, layered look. Merchandise adorned with either rhinestones or broaches (typically in the form of a flower or butterfly) look to be hot sellers, as well. Finally, in an interesting departure from the norm, retailers are sticking with many colors traditionally associated with summer, such as light blues, greens and pinks. Brown and purple are also big this year.
Recognizing the trends is the first step. Now its time to determine which retailers have the necessary merchandise mix to exploit these trends and deliver superior holiday returns.
For the past couple of years, bebe has been at the forefront of womens fashion. The same can be said for this holiday season. A delightful combination of wraps, fur coats, sexy jeans and eye-catching blouses suggests that bebe will continue to enjoy strong same-store sales comps for the remainder of this year. The companys accessories -- purses, shoes, jewelry -- were also spot on. If theres any concern with bebe, it is that the price point is high relative to its competition. Nothing outrageous mind you, but better values could be had at Guess? and Arden B. My guess is that the price difference wont matter, as bebe has a loyal following of thin, fashion-forward customers.
My other favorite in this area is Guess?. Merchandise in this store used to be a little too sexy for many women, but this season brings a different look. The companys new Marciano line is selling well early on and for good reason. The clothes are well-made, attractively styled and competitively priced. Guess? also has lots of rabbit fur items, the most attractive of which is a white vest priced at $160. Its denim collection is also varied and stylish, with price points slightly below those at bebe stores. Like bebe, Guess? also has a nice collection of wraps and blouses and is featuring to a greater extent than its competitors a variety of skirts, most of which are short. If the summer trends hold, skirts should be another good seller for Guess?.
The big loser among the fashion-forward stores is Arden B. The look and feel of the merchandise isnt as rich as its competitors, yet prices are very similar. The stores color schemes are also off. This isnt just my opinion, either, as stores were less crowded than bebe stores and Guess?.
The Limited and Banana Republic both miss the cut. Whereas the Limited provides younger women with fashionable clothing at better prices than bebe, Guess? or Arden B, the quality isnt as good. In addition, the warehouse feel of its stores is less inviting than the smaller boutique feel of its chief competitors. Banana Republic is a more enjoyable shopping environment than the Limited. Its stylings, however, are outdated, and its clothes are relatively expensive.
To recap, the two top picks in the under-35 set are bebe and Guess?. Both are attractive from an investment standpoint as well, with the former trading at 20 times estimated fiscal year 2005 earnings of $1 per share. Its operating margins and return on equity are also among the best in the industry. Investors should also note that the company pays a 1% dividend and is sitting on more than $4 per share in cash with no debt.
Guess? trades at a slightly higher premium to future earnings (about 24 times) due in part to its faster growth over the past year. The company also has some work to do on improving margins -- the new Marciano line should help in this regard. However, if the company can continue to enhance margins and earnings continue to grow at a 15%-to-20% clip, the stock should have no trouble outperforming the group in the months to come.
For the over-35 set: AnnTaylor and Chico's
The over-35 segment used to be dominated by Talbots and AnnTaylor. While the latter continues to deliver respectable growth, targeting a more conservative clientele, the former has lost its way. A trip through Talbots is a trip through merchandise hell -- unless, of course, youre shopping for Grandma. Styling is dull and outdated. Colors are way off target. Management claims that new fall lines are being well received, but Im not buying it. The sales racks were crowded while the stores were deserted. Stay away.
Over the past few years, some newer stores have really come on strong in what had been an underserved market. Chief among them are Chicos and J. Jill. Stylings are completely different, with Chicos offering more colorful, stylish merchandise and J. Jill more muted, conservative fare. The stores themselves could not be more different. Chicos stores are small and bright, giving an impression of high energy. J. Jill stores are serene, peaceful environments, with muted tones and dim lighting. However they both have attractive, quality clothing at reasonable prices.
From an investment standpoint, Chicos gets the nod over J. Jill. After its recent price retreat (from $46.26 to $34.40), Chicos now trades at a discount to J. Jill even though it sports much higher margins and return on equity. I also like the fact that more than 20% of the stocks float is being shorted. Consequently, if Chicos does what it always does and delivers strong sales growth this holiday season, these shorts will be forced to cover their positions -- adding fuel to the stocks ascent.
Returning to the battleground for the older shopper, the winner is AnnTaylor. Its return to basic, quality, business-oriented clothing has served it well. While not a big fan of its merchandise or its pricing (It seems a bit expensive.), theres enough here to like -- especially when you consider that the stock trades at a deep discount to the rest of the industry. At 13 times next years projected earnings and only 1.2 times trailing 12-month sales, AnnTaylor is a nice value play. As long as the company hits its targets, the stock should rebound to the $28-to-$30 area over the next 12 months.
If youre one of those early holiday shoppers and youre looking for something different to buy that special someone this year, you might want to stop by bebe, Guess?, Chicos and AnnTaylor. Better yet, pass on the blouse, jeans and fur and give some stock, as these four are well-positioned for a strong holiday season.
At the time of publication, Robert Walberg neither owned nor controlled shares in any equities mentioned in this column.
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