Last month, I discussed teen apparel retailers Abercrombie & Fitch and Aeropostale at length, and concluded that it’s tough to market to a fickle teenage crowd, which is currently enamored with nimble brands like H&M and Forever 21.
Therefore, I thought it would be interesting to see how the apparel retailers for older females had fared over the past year. For this comparison, I selected Ann Inc (NYSE:ANN), Chico’s FAS, Inc. (NYSE:CHS), and Coldwater Creek Inc. (NASDAQ:CWTR), all of which cater to females in their 40s and above. I believed that these three companies might have fared better that teen apparel retailers, since their customers are more financially secure and tend to shop repeatedly at certain stores out of habit.
Fundamentals first
Let’s first compare the fundamentals of these companies to see if they are considered growth, value or distressed stocks.
| 5-year PEG Ratio | Trailing P/E | Price to Sales (ttm) | Return on Equity (ttm) | Debt to Equity | Profit Margin | |
| Ann Inc. | 1.40 | 16.77 | 0.64 | 24.34% | No debt | 3.97% |
| Chico’s FAS | 0.83 | 15.27 | 1.01 | 16.69% | No debt | 6.83% |
| Coldwater Creek | N/A | N/A | 0.10 | -138.91% | 440.02 | -10.63% |
| Advantage | Chico’s | Chico’s | Coldwater Creek | Ann | Ann, Chico’s | Chico’s |
Source: Yahoo Finance, 6/3/2013
It’s immediately clear that Ann Inc (NYSE:ANN) and Chico’s FAS, Inc. (NYSE:CHS) are in a better financial situation than Coldwater Creek Inc. (NASDAQ:CWTR), which has pretty bleak fundamentals. Since Coldwater Creek Inc. (NASDAQ:CWTR) is currently unprofitable, it can’t be even considered a value stock. Let’s take a look at how these three businesses operate to better understand the world of mature women’s retailers.
Ann suffers a setback, but forecasts a rosy second quarter
Ann Inc (NYSE:ANN), the parent company of Ann Taylor and LOFT, has risen nearly 30% over the past twelve months, compared to a 17% rise in the S&P 500 over the same period. Last quarter, the New York-based company reported earnings of $0.44 per share, a 27% decline from the prior year quarter. Revenue rose 2.5% to $560.5 million. Both its top and bottom line growth topped analyst estimates, but same-store sales declined 0.5% year-on-year. This was a disappointing follow up to the previous quarter, when Ann Inc (NYSE:ANN)’s same-store sales rose 3.8%.
Like many other retailers, Ann blamed an unseasonably cold spring for tepid sales of warm weather clothing, which resulted in higher promotional spending and markdowns to clear unsold inventory, especially at LOFT. LOFT accounts for 60% of Ann’s total sales. Looking forward, however, Ann expects second quarter sales to rise to $640 million, with a 5% to 7% year-on-year increase in same-store sales.
Ann Inc (NYSE:ANN) stated that it was focused on enhancing its e-commerce site, finding the optimal size for its stores, and expanding internationally. CEO Katherine Krill noted that dresses, skirts, woven tops, jewelry, shoes were popular at its brick-and-mortar and online stores, while its wedding collection items sold well online.
Chico’s sees strong growth potential in two smaller brands
Chico’s FAS, Inc. (NYSE:CHS), which operates four main businesses – its namesake stores, White House Black Market, Soma Intimates, and the Boston Proper online catalog – hasn’t performed as well as Ann. Shares of Fort Myers, Florida-based Chico’s FAS, Inc. (NYSE:CHS) are up 10% over the past twelve months, underperforming the market. Last quarter, the company’s earnings per share came in flat from the prior year quarter at $0.32. Revenue rose 3% to $670.7 million, and same-store sales growth was also flat, a disappointing decline from same-store sales growth of 9.6% a year earlier. Both Chico’s bottom and top line growth missed analyst estimates.
Like Ann Inc (NYSE:ANN), Chico’s FAS, Inc. (NYSE:CHS) blamed its lower-than-expected sales and profit on the cold spring. However, a glaring discrepancy surfaced between same-store sales at Chico’s, Soma and White House Black Market. Same-store sales at Chico’s/Soma Intimates slid 2.8%, while same-store sales at White House Black Market, which targets females 25 years and older, rose 6.4%. This appears to indicate that White House Black Market, a notably “younger” brand than Chico’s FAS, Inc. (NYSE:CHS), which targets female shoppers in their 40s, is gaining more traction than its parent brand. Investors should pay attention to this disparity to see if this is the start of a longer-term trend.
Looking ahead, Chico’s is preparing to turn Boston Proper, the e-commerce business that it acquired in 2011, into a brick-and-mortar business later this year. Boston Proper offers apparel to an age group that includes both the target demographic of Chico’s and White House Black Market, which could help diversify and boost its top line growth.
Coldwater Creek gets left out in the cold
While Ann and Chico’s FAS, Inc. (NYSE:CHS) can be considered relatively safe, conservative investments, its competitor Coldwater Creek Inc. (NASDAQ:CWTR) has fallen off the map. The Sandpoint, Idaho-based company has lost more than 90% of its market value over the past three years, and has been unprofitable since 2008. In other words, Coldwater Creek is another company that was floored by the global financial meltdown and hasn’t yet mustered the strength to get back up. Coldwater Creek Inc. (NASDAQ:CWTR) focuses on less of a defined age group than either Ann Inc (NYSE:ANN) or Chico’s, but its apparel is generally considered more conservative and suited for a 35-54 age range.
Last quarter, Coldwater Creek Inc. (NASDAQ:CWTR) didn’t put up much of a fight. It reported a loss of $0.66 per share, a slight improvement from the loss of $0.80 it reported a year earlier. Revenue slid 8.35% to $155.7 million as same-store sales plunged 10.5%. Worse yet, the company does not see either its same-store sales improving, nor does it believe that it will rise out of the red, forecasting a net loss of $0.55 to $0.75 this quarter.
Although CEO Jill Dean touted some cost-cutting measures the struggling retailer has taken over the past quarter, the company still has no clearly defined plans to improve its performance for the rest of the year. In other words, company could be in serious trouble.
The Foolish Bottom Line
To answer my original thesis, I believe that retailers focusing on older women, like Ann and Chico’s FAS, Inc. (NYSE:CHS), are more stable investments than teen apparel retailers. Ann Inc (NYSE:ANN) and Chico’s both reported flat same-store sales growth last quarter, but when compared to the 14% and 15% declines respectively reported by Aeropostale and Abercrombie & Fitch, they look positively stunning. However, investors should watch out for companies like Coldwater Creek Inc. (NASDAQ:CWTR), which could suffer the same fate as Talbots, which was delisted last year.
The next time you look for retail stocks to invest in, maybe you should check out where your mom or aunt shops instead of what kids consider cool these days. It might just give you a fresh perspective on the retail apparel industry.
The article Will These Apparel Retailers for Mom Outgrow the Teenage Challengers? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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