More Good Quarters for Apparel Retailers Ahead?

Some of the best performing stocks since March have been the apparel retailers, besting RLX and SPY.

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Investors weren't wrong. The run ups were confirmed in fabulous earnings delivered by most of these companies this quarter: Chico's (CHS), Ann Taylor (ANN), J. Crew (JCG) to name a few. They blew away expected earnings.

What was impressive was how they did it. They held their gross margins while reducing inventory to remarkably low figures. JCG and CHS held their gross margins while dropping their inventories by 11% and 10% respectively. ANN, the queen of the inventory slashers, chopped 30% a square foot and still held their margins.

With such low inventories, apparel retailers are trying to avoid the sharp mark downs that were so devastating last Christmas. Low inventories allow retailers to get better pricing and, therefore, stronger profits. If excellent inventory management continues, look for more good quarters. Retailers that have cut costs and held down inventories are unlikely to do "fire sales". As for traffic, retailers, in their conference calls, don't see an up trend yet (although it's getting hard to find spaces in the parking lots).

Full disclosure: No position in any of the above

Comments

[bored2tears:]

I see Pollyanna's still refusing to take her reality pills.

Sep 01 08:07 AM

[2houndz:]

A war of attrition is a war that will eventually be lost.

Sep 02 06:56 AM

[TeresaE:]

China is raising its prices on apparel. Silently and outside of MSMs notice.

These stores may be making "great" margins on existing (lower cost) inventory, but what is going to happen if their restocking costs 20% more than they estimate?

There is also anecdotal evidence of consumers racking up additional debt for items that won't be taken back in bankruptcy court. Again, we should question if this is sustainable.

Nah, things are just fine and massive taxation headed our way will mean nothing but a return of consumerism and more jobs to fuel spending.

Sep 02 10:48 AM

[ETFdesk.com:]

Retailers look enourmously overvalued. Personal income is down 5% or so from this time last year and the only modicum of growth in spending has come on the heals of huge gov. incentive programs ie clunkers and the 1st time home buyers credit. They are enough to provide some slight up turns in housing figures and maybe positive print in Q3, beyond that it looks like the only thing that can only be done by that huge 70% chunk of GDP which is consumer spending. And that doesnt seem very plausible. If you need more reading on the subject see a number of great articles on deflationary environment ....

Cut my pay ... please! ; www.etfdesk.com/headli...
Unemployment: The Harder You Look, The Uglier It Appears From Naked Capitalism ; www.etfdesk.com/headli...
First Time Home Buyer NAR Numbers : www.etfdesk.com/headli...

Sep 02 07:47 PM

[Terence Chan:]

dude, the comparisons from last year were really low, analysts are mostly too bearish during recessions(or too bullish during bull market frenzies) in estimates, and the domestic consumer will still struggle. i'd rather short retail as a hedge to my longs. i still think it will be external factors and not the us consumer that will lead us out of recession -www.cheapeststocktradi...

Sep 03 04:54 AM

[bminfo247:]

Ann Taylor and other clothing companies geared towards women outside the back to school market, should do well if analyst predictions are realized. Read up on that at Yahoo Finance:
finance.yahoo.com/news...

Sep 11 10:40 AM