Retail sure is getting its bell rung lately. First it was Abercrombie & Fitch (NYSE:ANF) that took a tumble after a gloomy earnings call that mentioned the prospect of a double-dip recession gutting sales — sending the stock down 16% from Monday’s opening bell to Friday’s opening bell. Also this week, Aeropostale (NYSE:ARO) reduced guidance for the full-year after it reported Q2 profit plunged 93% as same-store sales dropped 14%. The stock is off 13% pre-market.
Gap Inc. (NYSE:GPS) reported Q2 profits down 19% as clothing chain forced to slash prices. Urban Outfitters (NASDAQ:URBN) saw Q2 profit fall 21%. Do we sense a trend?
There have been a few good (relatively speaking) headlines on the retail front lately.
Broadly, retail sales for July showed some of the strongest numbers in four months. But the trouble in teen retail — that is, higher-priced apparel sold mainly at malls to young people (or their parents) with money to burn — is in deep trouble.
In the malls and stripmalls of America, there is stark contrast between the retailers doing well and those that are not. Those stocks that succeed are catering to one of two consumers — folks who don’t care a whit about how much things cost, and folks who place cost savings above anything else in their purchases.
Take the discounters in this latter group. Target (NYSE:TGT) stock has held firm during the past 30 days with shares flat thanks to earnings track record and a strong outlook, while the Dow has lost more than 11% (and maybe more by the time you read this). Dollar General (NYSE:DG) is equally strong, sitting on a loss of about 1% in the last month (again, as of this moment) thanks in part to news that Warren Buffett and Berkshire Hathaway (NYSE:BRK.B) are now in hock for some 1.5 billion shares of the discounter. Clearly these discounters are doing all right.
But it’s not a race to the bottom. Referring back to those July retail numbers, the high-end retailers also are thriving. Luxury retailer Saks (NYSE:SKS) saw July sales up 15.6%. Other high end retail stocks weren’t as hot, but followed this trend — Nordstrom (NYSE:JWN) sales rose by 6.6% in the month and Macy’s (NYSE:M) was up 5%. On the other end of the spectrum you have cheap-chic Target, with its aforementioned strong earnings, and bargain store DG cashing in on the discount front.
So if the luxury shops still are bringing in rich customers and the discounters like Dollar General are catering to cash-strapped consumers, where does that leave the rest of the sector?
Well, look no further than the recent performance of teen retail stocks. The clothes are pricey and higher quality than a department store, but hardly luxury fashion wear. The T-shirts and jeans are must-haves for any wardrobe, but you can get them cheaper at a big-box store like Target.
That leaves these shops in a very tough spot.
Things can, of course, turn around very quickly for these stocks. As the economy “stabilized” in mid-2010, A&F and Buckle (NYSE:BKE) both raced up over 70% in just nine months. Bargain hunters can make a killing buying these teen retailer stocks at the right time.
Whether that time is now, however, remains a very big question.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
