NEW YORK — High school is all about who’s in and who’s out. For the teen retailers, it’s playing the same way.
On Monday, Wet Seal was out after it said creative director Victor Alfaro resigned. PacSun was in, after delivering robust results for its second quarter. Today, Abercrombie & Fitch, which posted lackluster same-store sales for July, could be out as it reports quarterly results. Then again, it could be in as the industry waits to see if the retailer shares details about its latest division: Ruehl.
Oh, and then there’s the back-to-school shopping season, which could be a big in this year, according to analysts.
In a statement before the market opened, The Wet Seal Inc. said Alfaro, who joined the company one year ago, “resigned and has been released from his contract, effective August 15, 2004.” The retailer is searching for a replacement, and said it doesn’t believe Alfaro’s departure “will materially impact its future financial performance.”
This creative merchandising executive change couldn’t have come at a more critical time for the Foothill Ranch, Calif., company. Specialty retailers are in the midst of a b-t-s push, and Wet Seal, which said in a Securities and Exchange Commission filing in June that it couldn’t rule out a “potential reorganization” under Chapter 11, is banking on Alfaro’s designs to reinvigorate sales. Comparable-store sales for Wet Seal have been negative for the past 25 months.
The retailer declined further comment on Alfaro’s departure. But in the statement, Allan Haims, president of the Wet Seal division, said the retailer has “already identified a number of excellent candidates and looks forward to announcing a new designer in the near future.”
Haims went on to say that “this does not change our strategy of creating a unique fashion statement for our target customer by bringing together market goods with merchandise that has been designed in-house.” Haims then thanked Alfaro for the contribution he made in “establishing this new design focus at Wet Seal for the back-to-school, holiday and cruise collections and we wish him all the best in the future.”In other news, Wet Seal said Gary White was appointed to the newly created position of senior vice president of stores and operations.
White comes from serving as president and chief executive officer of Savers Inc., a discount retailer with 200 stores in the U.S., Canada and Australia. Previously, White served as president and ceo of Gymboree Corp., as well as executive vice president of stores and operations at Mervyn’s, and a regional director at Target Corp.
Wet Seal also said it was opening a design office in late September that will serve the Wet Seal and Arden B. divisions. The 12,000-square-foot office will be at the Gerry Building in L.A., and will employ up to 40 people.
On Wall Street, the level of optimism over Wet Seal’s future dimmed as Monday wore on. Elizabeth Pierce, equity analyst for Sanders Morris Harris, slapped Wet Seal’s stock with a downgrade to a “hold” from a “buy” in her morning research note. She said “the lack of a chief merchant clearly changes our investment thesis,” which was modeled on Alfaro’s fall launch.
Pierce said she fears “another ‘restart’ might be necessary [at Wet Seal]; meaning that the time horizon for the turnaround will once again be extended.” Shares of Wet Seal ended the day by plunging 27.8 percent, closing at $1.77 on the Nasdaq after setting a new 52-week low of $1.71 in intraday trading. That was the lowest close since January 20, 1995.
Before posting shining sales and earnings for the second quarter, Pacific Sunwear of California Inc. watched its stock close down 0.54 percent to $18.30 in Nasdaq trading. Fueling quarterly results for the Anaheim, Calif.-based teen retailer were new store openings as well as sales of footwear and accessories.
For the quarter ended July 31, earnings zoomed 44.4 percent to $19.3 million, or 25 cents a diluted share, against earnings of $13.4 million, or 17 cents, in the year-ago quarter, while sales advanced 17.2 percent to $274.8 million from $234.4 million, with comparable-store sales rising 6.8 percent.
“For PacSun in the second quarter, our footwear and accessory businesses continued to be very strong,” said Greg Weaver, chairman and ceo during the company conference call with analysts. “For the year, these categories are expected to gain share and grow to 35 percent of PacSun sales versus 31 percent in 2003.”For the first half of the year, earnings ballooned 60.6 percent to $34.3 million, or 43 cents a diluted share, against earnings of $21.4 million, or 28 cents, in the first half last year. while sales increased 11.9 percent to $519.9 million from $432.7 million.
The total number of units open, including PacSun, outlet and Demo stores, rose by 108 to 947 in the first half compared with 839 during the same period a year ago. The number of PacSun stores in operation rose by 67 to 717 from 650.
For Abercrombie & Fitch, which reports its second-quarter results today, earnings per share are pegged to be in the 42 cent range. Same-store sales last month fell by 9 percent. Dana Telsey of Bear Stearns, noted in a preview, “A&F’s comps were lackluster in the second quarter of 2004 as improvement in May was mitigated by June and July, which anniversaried more promotional periods last year.” She said that, despite soft top-line results, A&F continues to benefit from its “high initial mark-up given favorable sourcing costs, as the company manages its business for margin with limited markdowns and prudent inventory strategies.”
Regarding Ruehl, the new divisional nameplate WWD learned about earlier this month, it’s unclear when A&F will disclose details and strategies.
For the specialty segment, the consensus of analysts has been that retailers are working hard to carry the momentum they built in the spring and summer through to the b-t-s season. The key words this year are color, denim and super preppy.
According to a recent survey of teens by Dana Cohen, analyst at Banc of America Securities, the “girls in our focus group liked the colors and the fun, feminine skirts.” While guys were more price-conscious, both groups were still willing to “pay for what they perceived as a good value.”
American Eagle Outfitters was the big winner in the focus-group survey with more than 90 percent of the teens giving the specialty store a “thumbs-up” for appealing fashion and quality at the right prices. Meanwhile, more young men were impressed with the style and price points at Aeropostale, while juniors preferred Charlotte Russe for dressy apparel. They also liked the relaunched Refuge line for casual apparel at Charlotte Russe.For high school females, according to Cohen’s survey, American Eagle was their favorite store, while A&F was the place they are most likely to spend $100. According to the survey, their favorite denim brand is L.E.I., and the two places they would like to work are American Eagle and Urban Outfitters.
Deborah Weinswig, equity analyst at Citigroup Smith Barney, said in a research note that b-t-s this year will be the best season in four years. “We believe that fashion newness is going to be the key driver of back-to-school and fall sales this season as consumers liven up their wardrobes,” the analyst wrote.
Key fashion drivers include “preppy and feminine vintage, as well as rich colors such as purple, emerald green, brown and camel. Denim bottoms and skirts, graphic Ts, ponchos, novelty knit caps and shrunken jackets and multilayered outfits are going to be hot items this season,” Weinswig noted in her report.
The National Retail Federation said families with school-aged children are expected to increase their average spending by 7.2 percent to $483.28, up from $450.76 last year. Apparel and accessories are expected to grab the lion’s share at 45 percent of spending.
— With contributions from Vicki M. Young and Nola Sarkisian-Miller, Los Angeles
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