Specialty retailers have been quite volatile this quarter; most retailers usually have a strong performance in the fourth quarter, but this year has been very different. With so much uncertainty around the world, many retailers have failed to hit sales targets and have got investors scratching their heads. I would like to give my perspective on what investors should do with these specialty stocks.
Pacsun (PSUN) - Pacsun has been a big disappointment for its investors this year. Pacsun has dropped about 80% since the beginning of the year. Pacsun is a mall based retailer that sells a combination of branded and proprietary casual apparel for teens and young adults.
The company has been faced with declining sales as it struggles to compete. Net sales for the third quarter of fiscal 2011 were $242.0 million versus net sales of $257.9 million for the third quarter of fiscal 2010. Total company same-store sales decreased 3% during the period.
I believe Pacsun is in the very early stages of its turnaround. The company will be closing about 175 to 200 underperforming stores within the next 14 months. The underperforming locations have seen same-store sales decrease 9%. Pacsun will retain 550-600 stores that are seeing same-sales of negative 1%. Even though same-store sales may be slightly negative, Pacsun is heading in the right direction and should be able to turn that number around. Once the store closures are completed the company should be able to work its way back into positive territory.
I'm bullish on Pacsun and will be looking to start a small long position on a pullback. This is a speculative position for me so be sure to do your due diligence before starting any position.
Zumiez (ZUMZ) - Zumiez is a mall based specialty retailer focused on sports related apparel, footwear, equipment and accessories. The company caters to young men and women between the ages of 12 to 24. The company operates 434 stores in the United States and 10 stores in Canada.
The company recently announced strong results for the third quarter. Total net sales for the third quarter increased 13.3% to $154.0 million compared to $135.9 million for the same quarter in 2010. Comparable store sales for the third quarter increased 6.0% in the third quarter. This increase is on top of a comparable store sales increase of 14.4% in the same quarter last year. Net income in the third quarter of fiscal 2011 increased 14.8% to $14.1 million.
I'm bullish on Zumiez and view pullbacks as opportunities to buy. The company is heading in the right direction and should continue benefit when the economy recovers. The company has seen revenue grow year-over-year for the last five quarters. The average growth rate was 17% over that period. I also like how the company has beat analyst estimates over the last four quarters.
Abercrombie & Fitch (ANF) - Abercrombie & Fitch has lost about 38% since October 28, 2011. The company has been faced with a tough economic environment in Europe and the United States; these markets make up a majority of the company's sales.
Abercrombie had a relatively strong quarter with U.S. sales increasing 14% to $820.2 million and international sales jumping 56% to 255.7 million. Total same-store sales were up 7%, rising 4% at Abercrombie & Fitch stores and 8% at Hollister unit locations. Profit for the company inched up to $50.9 million, or 57 cents a share, from $50 million, or 56 cents, a year earlier.
Many investors may be wondering why the company has declined after a decent quarter. Analysts were expecting earnings of 71 cents per share compared to 57 cents per share in the most recent quarter. A pretty big disappointment to many investors. Analysts are concerned that Abercrombie's big push into Europe may be a big problem for the company down the road. The company's promotional pricing strategy also took a toll on margins, gross margins narrowed to 60.1% from 63.7%.
I'm bullish on Abercrombie and feel that the sell-off is starting to get extended. I do believe there's a possibility that the stock may fall into the $30 area if European Union talks were to break-down. I would wait for the pullback before I would start any long position. Abercrombie is looking to increase prices modestly in the U.S. next year; this should help increase its margins going forward. If the European situation were to stabilize and recover, I will look to play Abercrombie for a nice bounce.