These Stocks Are Fashion Casualties

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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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. Try any of our Foolish newsletters today, free for 30 days.


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  • Report this Comment On May 21, 2009, at 4:57 PM, VernElliot wrote:

    What a shocker. Lomax bashing Talbots yet again. I was wondering when she'd pull her bitter head out of the sand and spew. Its been waht, about a month. She must have an ' I hate Talbots' reminder on her calander. What she leaves out is the decreased debt load because of the Aeon support, the new sourcing deal with Li & Fund and the sale of J Jill that will substantially reduce overhead. Go look at Bloomerg Lomax and do your homework first.

  • Report this Comment On May 22, 2009, at 10:03 AM, Dizzy99 wrote:

    TLB is likely to sell J Jill to Golden Gate, the proceeds will be used to pay down some of AEON's debt. AEON has provided a liquidity backstop for TLB, basically guaranteeing any refi needs. AEON's debt has no debt covenants and in many cases is interest only, you can't get those terms in this market from anyone else it's beneficial for TLB.

    Stores are being closed, rental relief on the way as leases come up for renewal, strong USD benefits US-based mall retailers because their sourcing costs will go down, they source overseas, USD declined every year since 2004, now in 2009, USD is strong, that will help. Commodities also will reduce sourcing (cotton) and transportation costs.

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