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The more I hear about retailers targeting the older female demographic, the more I'm convinced that this slice of the market spells bad news for investors.
Talbots (Nasdaq: TLB ) stock surged yesterday after winning an upgrade from an analyst at FBR Capital Markets -- if only because said analyst thought Talbots' chances of going bankrupt might have slightly diminished. That kind of endorsement doesn't exactly fill me with confidence. (The analyst did note that the stock was best for "more speculative investors." I hope investors took that caveat to heart.)
Talbots' heavy debt load earned it a spot on my list of retailers we might have to kiss goodbye last October. Worse yet, Talbots is having a tough time turning around its actual business. Japan's Aeon, the majority shareholder, has continued to support Talbots' battle for survival, but I'm not quite excited about the retailer's long-term prospects.
The competitive landscape in this sub-segment is ruthless. Plenty of specialty retailers cater to older female shoppers, including Ann Taylor (NYSE: ANN ) , Chico's (NYSE: CHS ) , and Coldwater Creek (Nasdaq: CWTR ) , not to mention department stores such as Macy's (NYSE: M ) . And it's no secret that all of those retailers have struggled to lure customers in the doors.
Ann Taylor swung to a first-quarter loss, experiencing a nauseating 30.7% plunge in same-store sales. And for all the bullish sentiment investors have lavished on Chico's lately, I haven't seen any signs of progress in its actual business. That's why I singled out Chico's in our "The Stock To Sell Now" roundtable earlier this week.
But cutthroat competition isn't the whole of my bearish premise here. I'm also concerned that the older female shoppers this segment targets may be among the first consumers to tighten their purse strings when their financial future grows uncertain.
Elsewhere in the retail world, some companies are doing remarkably well despite the tough climate. Teen retailer Buckle (NYSE: BKE ) has been an outlier for quite some time now; it reported a very impressive quarter today, complete with a 17.7% surge in same-store sales.
I don't think investors should avoid retail stocks altogether, but I do believe they should focus on finding true quality, not a stock price that looks "cheap" on the face of it. And when it comes to stores that woo older female shoppers, I think no amount of caution is too extreme.
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