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 Warnings from apparel maker Perry Ellis, whose clothing brands fill
the racks of many retailers, and other companies suggest teens and
other shoppers are still ho-hum about spending on fashion and that
investors should be cautious, especially about mall-dependent
retailers.
A trifecta of Silicon Valley-led trends could hurt companies that
depend on foot traffic at suburban shopping malls: Teens are
spending more time on devices and less at the mall; consumers are
increasingly willing to buy clothes online, often from internet-only
stores, and consumers in general have shifted their priorities away
from clothing and toward technology and home improvement.
Wall Street analysts on average expect several months of falling or
barely-growing revenues from Gap <GPS.N>, American Eagle Outfitters
<AEO.N> and other mall mainstays. They see a glimmer of hope at year
end, with shoppers potentially buying more winter attire than in
2015, when the weather was mild in parts of the United States.
"We've had a hard time finding very many names in apparel retail,"
said Robert Marvin, co-portfolio manager of the $130 million Hood
River Small Cap Growth Fund, who said he is mostly steering clear of
the sector because it does not seem favorably priced, based on the
restrained outlook.
The fund does own shares of shoe and cap seller Genesco because
Marvin expects a turnaround after last year disappointed and after
the company shook up leadership in its Lids division.
With the propagation of privately held fashion ecommerce stores like
Everlane and ShopBop competing with Amazon, as well as more
customer-friendly shipping policies from traditional retailers,
clothing and accessories outsold computer gear online for the first
time last year, reaching $17.2 billion in the fourth quarter,
according to comScore.
"Kids don't need to go the mall anymore to socialize," said BB&T
stock analyst Corinna Freedman, who frequently visits Foot Locker,
Coach and other retailers she covers. "The mall is no longer the
hangout place it once was."
Shares of apparel retailers have performed poorly. Aeropostale
has lost 93 percent in the past year and recently warned of
potential liquidity problems. Shares of L Brands, the owner of
Victoria Secrets, are down 12 percent so far in 2016, missing out on
much of a stock market rally since mid-February.
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Some of the blame for those woes has been laid at the feet of
teenagers happy to wear inexpensive outfits mixed and matched from
"fast-fashion" sellers like privately held Forever 21, with little
interest in the brand-labeled clothes sold by longer-established
stores like Abercrombie & Fitch Co.
Apparel and accessories retailers in the S&P 500 retailing index are
expected to post a 1.3 percent drop in first-quarter earnings,
followed by a 1.9 percent increase in the second quarter, according
to Thomson Reuters I/B/E/S analyst David Aurelio.
Many of them will close out their fiscal first quarter in April and
report results in May.
Macy's, the operator of Bloomingdale's as well as its eponymous
department stores, is seen posting three quarters of declining
revenue before eking out a 0.3 percent increase in the holiday
quarter. In comparison, home improvement retailers are expected to
report a 16 percent climb in profits in their first quarter and
second quarters.
Perry Ellis International on Tuesday warned that retailers are being
cautious about their inventories. Buckle, which sells clothes for
teens, saw its sales fall 11 percent in March, and Gap reported a
worse-than-expected 6 percent drop in March same-store sales.
(Reporting by Noel Randewich; Editing by Linda Stern and Leslie
Adler)
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