Byline: Jennifer Weitzman

NEW YORK — In the battle for teen and young-adult loyalties, the stores with the best “tribal” relations gained ground on the less nimble last year.
“This teen wants to shop in his or her own shopping environment,” Bear, Stearn’s Brian Tunick said. “Whereas the Gap and department stores offer basic merchandise and appeal to the entire family, teens, wanting to avoid this, look to belong to something.” Those unofficial tribal affiliations are helping some specialists to render irrelevant the economic gloom and doom, falling stock prices and rising energy costs.
Joining Gadzooks, which reported net-income increases of 71.3 percent in the fourth quarter and 110.7 percent in the fiscal year on Monday, as reported, American Eagle Outfitters and Hot Topic reported double-digit increases in profits for the fourth quarter this week. Meanwhile, the less-focused Urban Outfitters said Thursday that its quarterly profits dropped 38.4 percent.
Analysts agreed that, as the number of specialty stores catering to the growing teen demographic increases, those that better define and focus on specific teen subcultures, from gothic-grunge to jock-prep, continue to gain market share from those retailers whose merchandise has gotten too broad.
“Differentiation is key,” Tunick said. “Teens don’t want [to shop] in a cookie-cutter store, but rather, they want the store and its Web site to cater to them to allow them to be part of the brand and image.”
And these stores have huge growth potential, industry analysts said, because of the group’s resistance to the economic uncertainties afflicting their parents and their uncanny ability to spend much of their money on looking, and even smelling, good.
Jeffrey Klinefelter with U.S. Bancorp Piper Jaffray said that the teen sector is set to outperform the rest of the retail market over the next two quarters and beyond. In addition, many are top growth stocks because they are going up against easy comp numbers and have strong potential for earnings growth.
Adding that teens spend $155 billion a year, Tunick said “teens will find a way to buy.”
And that they did.
Income at teen casual apparel retailer American Eagle Outfitters soared 32.3 percent in the fourth quarter, to $49.1 million, or 68 cents a diluted share, beating consensus estimates by 3 cents. That compares with income of $37.1 million, or 51 cents, in the year-ago period.
The Warrendale, Pa.-based firm reported sales increased 48.5 percent, to $423.7 million from $285.4 million, including $35 million from the Thrifty/Bluenotes operation it acquired Oct. 28. Comparable-store sales increased 11.3 percent.
“The American Eagle brand continued to gain market share in 2000,” said Roger Markfield, president and chief marketing officer, on a conference call. “The business was driven by our commitment to provide fashion-right, high-quality, value-priced merchandise to our target customer.”
Markfield said he was especially pleased with the strong acceptance of its denim program, which began during the back-to-school season. “Our fashion was clearly right in terms of style, wash and fit,” he said, adding that sweater business was the “strongest ever” for both men and women.
Indeed, most industry watchers were pleased with the company’s performance, saying results were buoyed by a strong holiday performance. And although the current quarter started slowly, with February’s comps down 4.5 percent due to a lack of winter merchandise during the cold spell, executives said new spring merchandise so far has been well received.
Markfield said he has seen “a clear turnaround in sales over the last several days in key fashion spring items,” including women’s polos, halter tops, capris and new fabrications as well as in men’s polos, rugby and denim. He also noted the company’s renewed emphasis on sportswear this season, after a miserable dress season last year.
“They are on a roll,” said A.G. Edwards & Sons’ Robert Buchanan.
However, despite strong men’s wear results in a generally down market, Buchanan is concerned about a lack of newness for the young man. “Outside of the tight-to-the-body polo tops in men’s, there is not much going on. Their cargo shorts and plaid woven tops are a lot like they had two years ago.” But on the other side, he said women’s should sizzle with its spandex and lace tops and bottoms, including capris, halters and tanks.
The 554-unit mall chain plans to open 80 new doors this year in the U.S. and another 46 in Canada. It currently operates 109 Thrifty’s/Bluenotes units and it plans to open another eight this year. Laura Weil, chief financial officer, said results for the Canadian division are exceeding plan.
Weil said that given February’s disappointing results, the company is “cautiously optimistic” for the first quarter. Still, she said, if sales continue to improve in March and April, the company expects to make First Call’s consensus estimate of 18 cents.
As reported, American Eagle has entered into an entertainment alliance with Bunim/Murray Productions to be the official wardrobe provider for MTV’s “Road Rules 10.” The company already has deals with Dimension Films, the genre film division of Miramax and whose productions target the retailer’s demographic.
Hot Topic’s “anticonventional way of doing things” steered the specialty chain to a 40 percent surge in fourth-quarter earnings and an even higher comparison for the full year.
Income for the City of Industry, Calif.-based firm jumped to $10.4 million, or 48 cents a diluted share, from $7.4 million, or 36 cents, a year ago. Results edged out Wall Street’s consensus estimate of 47 cents.
Sales for the period ended Feb. 3 jumped 47.6 percent, to $88.4 million from $60 million, with same-store sales ahead 11.2 percent, marking the retailer’s eighth consecutive quarter of double-digit growth. Apparel and T-shirts accounted for 50 percent of sales, compared to 49 percent a year ago.
Betsy McLaughlin, president and chief executive officer, said on a conference call: “Despite a difficult retail climate in December and January, promotional activity was low and on plan, resulting in strong merchandise margins.” In addition, she said that all major classifications produced average per store sales increases.
The 277-unit chain said its selling, general and administrative expense rose 61.1 percent, to $21.9 million, or 24.7 percent of net sales, from $13.6 million, or 22.6 percent, due to higher expenses related to development costs for Torrid, the plus-size spinoff it will launch this year. The company plans to introduce Torrid on April 19 with five more units in May. In addition, it is planning to open 65 new Hot Topic stores in 2001.
Under the guidance of Orv Madden, Hot Topic’s founder and, until recently, its ceo, the company determined that from 40 million to 65 million large-sized women aged 15 to 30 can’t find streetwear or clubwear they consider “cool.” Plus-sized retailers such as Lane Bryant offer large-sized careerwear and casual clothes, but not edgy fashion.
Torrid will offer street, club and casualwear, but beyond a 10 percent to 15 percent crossover in styles, little else will link the concept with Hot Topic, McLaughlin said.
On the call, Jay Johnson, senior vice president, strategic alliances and investor relations, said operating income per store increased 30 percent, to $142,000 from $109,000. Looking ahead, Johnson said the company is optimistic about the first quarter and is comfortable with consensus earnings per share estimates of 14 cents as well as 7 percent comps.
“Fiscal 2001 is off to a great start with a 10 percent comparable-store sales performance in February and very positive customer response to our new store design,” McLaughlin said.
Johnson also said Hot Topic expects 20 percent to 30 percent earnings growth this year, to $29 million, or $1.33, achievable through a 25 percent square-foot growth, mid-single digit comps and leveraging of SG&A expenses.
The quarter did not deliver for all teen concepts. Urban Outfitters reported income declined 38.4 percent, to $3.4 million, or 20 cents a diluted share, for the three months ended Jan. 31. That compares with income of $5.5 million, or 31 cents. The Philadelphia-based retailer reported sales increased 13.5 percent, to $85.6 million from $75.4 million, while comparable-store sales fell 3 percent.
In addition, the firm said its direct business rose 28 percent, as a result of a 49 percent increase in circulation of its Anthropologie catalog and additional Anthropologie e-commerce sales.
Holly Guthrie, of Janney Montgomery Scott said she blamed the retailer’s downturn on missed fashion and prices that got too high. “I don’t think it hit a chord with the American teen,” she said.
Opportunities were also missed due to lack of marketing, she noted, although she said the company is looking into providing apparel to fashion magazines.