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A Tale of Two Tween Brands

Tween Brands (NYSE: TWB  ) , which has made a name for itself catering to girls aged 7-14, posted first-quarter sales growth of 12.8% on continued strong results in its Justice store base. Unfortunately, results at its Limited Too stores continued to flag, contributing to a more than 65% drop in the quarter’s earnings.

The same-store sales figures illustrate the divergent trends; Justice saw a stellar 22% improvement in comparable sales, while Limited Too reported a 7% fall. This resulted in an overall comp drop of 1%, as Tween operates twice as many Limited Too stores as it does for the much more popular Justice franchise. Management attributed the challenging Limited Too results to a miss in color selections in the sportswear segment, as well as increased cost-consciousness from moms facing rapidly rising gas prices.

In stark contrast, existing Justice stores performed exceptionally well, given that they were up against tough comps. Tween didn't cite any smoking-gun reason as to why it can't translate Justice's success to the more mature Limited Too store base, but its location in strip malls has to help; families can drop in on the way to Kohl's (NYSE: KSS  ) , Target (NYSE: TGT  ) , or Wal-Mart (NYSE: WMT  ) , which have been stealing traffic away from traditional shopping malls for decades. Those retailers, along with J.C. Penney (NYSE: JCP  ) , also serve as competitors to Tween, though management believes these rivals are much weaker in the specialized tween category.

Justice also carries more basic items as compared to Limited Too, which is a big benefit given the current tough retailing environment as shoppers trade down to more affordable alternatives. It's little surprise, then, that Tween is leaning on Justice for new store growth; for the quarter, it opened 21 Justice stores and netted only four new Limited Too stores.

First-quarter results were better than analysts were expecting, and management now expects second-quarter earnings to reach positive territory – previously, it was calling for a slight loss. Clearly, things are looking up for Tween Brands, but Limited Too is still holding Justice back and torpedoing overall financial results.    

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Fool contributor Ryan Fuhrmann is long shares of Kohl's, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy. Wal-Mart is an Inside Value pick.

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Related Tickers

11/25/2009 4:01 PM
TWB $10.45 Down +0.00 +0.00%
Tween Brands CAPS Rating: **
JCP $8.84 Up +0.18 +2.08%
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KSS $45.05 Up +1.03 +2.34%
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Target CAPS Rating: ***
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