Seeking Alpha
Profile| Send Message| ()  

The results of a survey released by Visa (V) earlier this month revealed "American families who have teenagers will spend an average of $1,078 each on the prom, a 33.6% boost over the $807 spent in 2011."

Companies that could potentially benefit from a boost in prom-related sales include florist 1-800-Flowers.com Inc. (FLWS), Men's Wearhouse (MW), which sells suits and rents tuxedos, and retailers that sell clothing including prom dresses, such as Macy's (M) and dELIA*s (DLIA).

This raises the question: why does Visa, who processed 13.6 trillion transactions in the three-month period ended December 31, 2012, according to the company's 10-Q, care about your local high school's Enchantment Under the Sea Dance?

Part of the answer may be that the prom is estimated to be a $4-billion-a-year industry in America, according to this article from 2011 reported by The Week. Visa's press release does state that prom season spending is "spiraling out of control" and makes suggestions of how consumers can save on prom costs. So perhaps Visa wants to ensure that its customers don't overextend themselves to the point that they can afford fewer future transactions using Visa cards.

Another part of the answer may also come in the breakdown of the company's operating revenues on page 24 of the 10-Q.

Region

Operating Revenues

(Millions)

Percentage of Operating Revenues in Region

U.S.

1,386

54.4%

Rest of World

1.106

43.4%

Visa Europe

55

2.2%

Total

2,547

100%

As Visa derives the majority of its operating revenues from the United States, the question arises whether prom spending may help predict other consumer spending, or whether this year's planned increase in spending among survey participants is somehow unrelated to consumer sentiment.

An article in USA Today, discussing the survey offers a variety of explanations as to why prom spending is on the rise, including: proms rising to the importance of weddings; affluent parents using their children to convey their affluence to others; and social media causing teenagers to be more concerned about the appearance they project to their peers.

However, I would argue that the factors cited for the rising prom costs are not new to 2012. Looking at past years, USA Today reported in 2004 that prom costs could "easily run" from $400 to $3,000 and up, per couple, based on the costs of his and her prom-related musts. According to a 2006 survey by Your Prom Magazine, reported in the Columbus Dispatch, the average couple spent $1,048 on prom night. And in an article written in the New York Times near the height of the recession in 2009, the prom industry expected sales to be 6 percent higher that year than the year before.

Perhaps, more surprising than the 33% year-over-year growth rate is that the highest-spending families surveyed earn between $20,000 and $29,999, and plan to spend an average of $2,635. Visa's press release doesn't indicate whether these families plan to pay for their prom expenditures through savings, credit, or other means.

All of this indicates that many American families consider prom spending to be an expense that they will avoid cutting at all costs.

However, the 33% year-over-year planned spending increase indicates that American teens and parents are more willing, whether through the use of credit or cash to spend money on consumer discretionary items related to proms this year. Investors and payment-processing companies like Visa can come to their own conclusions as to whether planned prom spending provides an indication as to whether an increasing number of American parents and teens may be able and likely to spend more on other non-prom related consumer discretionary items in the near future.

For those who believe that to be the case, I have listed some apparel retailers that cater to teens and operate stores only in America, including Puerto Rico. I haven't included retailers that operate in Europe due to the current economic uncertainty there, and also did not include those operating in Canada, as Statistics Canada recently reported that retail sales fell in Canada in February compared to January, according to CBC.

Retailers that target teens, but only operate in America include Pacific Sunwear (PSUN), which I recently wrote about in this article, the Buckle (BKE), Wet Seal (WTSLA), rue21 (RUE), and dELIA*s, which as mentioned at the beginning of this article sells prom dresses. Financial numbers are from Yahoo Finance, after the close of trading on April 26, and readers looking at those statistics are cautioned to independently verify data from financial web sites.

The sources for the number of stores were the companies' financial reports linked in the table. Facebook "likes" and new "likes" are available from clicking on "likes" on the companies' Facebook pages. The approximate "likes" are rounded by Facebook. While a company like the Buckle is profitable, despite a relatively low number of "likes", an increase in likes does indicate that a brand has been recently able to engage its users on Facebook, which could be beneficial to its sales.

Store

EPS (past year)

Trailing P/E

Number of Stores In The United States

Facebook Likes (Approx)

New Facebook Likes Week Ending April 24

The Buckle

$3.20

14.52

431

261,000

1,530

dELIA*s

-$0.73

N/A

113

376,000

2,753

Pacific Sunwear

-$1.60

N/A

733

1.6 million

16,334

rue21

$1.55

19.46

770

1.0 million

10,303

Wet Seal

$0.16

20.69

553

2.0 million

4,627

Investors who believe in a resurgence of teen spending in America may want to look closer at the above companies, which have widely varying financial circumstances and risk factors. When Visa reports earnings after the close of markets on Wednesday, May 2, investors in Visa and other consumer discretionary companies will gain further insight into the current state of American consumers of all ages.

Disclaimer: The commentary expressed in this article is not legal advice, nor investment advice, and is subject to Seeking Alpha's Terms of Use, which are available here: seekingalpha.com/page/terms-of-use

Source: What Visa's Prom Study May Tell Us About Teen Apparel And Other Retailers