Investors have given women's apparel retailers Talbots and Chico's FAS the benefit of the doubt, keeping their stocks relatively high and dry despite recent dives by J. Jill and Coldwater Creek, which target a similar demographic. Investors should examine next week's monthly sales data closely to see whether that policy is a wise one with the economy clearly affecting consumer spending.

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By Dave Marino-Nachison (TMF Braden)
March 2, 2001

Four very similar companies, four very similar customer demographics. But while two have seen their shares whacked in recent sessions on earnings warnings, the remaining two have held relatively strong. Investors may want to investigate whether there is an underlying business reason for this -- or a disaster waiting to happen.

Coldwater Creek (Nasdaq: CWTR), J. Jill (Nasdaq: JILL), Chico's FAS (Nasdaq: CHCS), and Talbots (NYSE: TLB) essentially serve the same market segment -- that much is clear from reading their annual reports. All four offer stylish casual and professional apparel and accessories to affluent, active women in a similar age range:

• J. Jill sells "simple, comfortable, versatile" clothes to "active, affluent women age 35 to 55."
• Coldwater Creek's "women's apparel, jewelry, gifts, and soft home accessories" are targeted at "women between the ages of 35 to 55 with household incomes in excess of $50,000."
• Chico's FAS markets "private label casual to dressy clothing" to "women of all ages... with a particular focus on 35- to 60-year-old women with moderate and higher income levels."
• Talbots offers "classic sportswear [and] casual wear" and "believes that a majority of its customers are college-educated and employed, primarily in professional and managerial occupations."

Starting to sound repetitive? There's good reason for that. The four companies have wisely and aggressively targeted a large, economically powerful sector of the U.S. population -- a mark of well-run retailers. That's translated to solid returns for investors: Each company has outperformed the S&P 500 Index over the last two years.

J. Jill shares tumbled earlier this week after (Get it? Tumbled... after?) CEO Gordon Cooke, while reporting strong fourth-quarter earnings growth year-over-year, said the company's recent run of strong results may come under economic fire. "This past week," he said, "we saw our first indication of a slowdown in customer demand. It is far too early, however, to predict whether this slowdown will continue or what impact it may have on our overall business." (J. Jill is a recent Foolish Double.)

Coldwater Creek was similarly polluted by a mid-February earnings warning in which it said its spring launch was hurt by, among other things, "decreased consumer confidence and a highly promotional selling environment." Layoffs followed soon after. Shares of Talbots and Chico's FAS, meanwhile, have held strong behind solid January sales data. (For more on the retail business, visit our InDepth page on the subject.)

Why is this? At this point, there's not a lot of data for investors to cling to -- but they should be prepared for disappointments of their own.

Chico's and  Talbots, in their defense, actually raised fiscal Q4 (ended Jan. 31) earnings expectations last month. Talbots expressed enthusiasm for all of 2001.

But the economic environment has clearly taken its toll on the spending habits of those companies' core demographics, and it seems likely that the ill wind will blow across the whole landscape in time. Investors in Chico's FAS and Talbots should carefully watch February sales data, likely due next Thursday, for signs of similar difficulties at their companies. Both face stiff year-over-year same-store sales comparisons, Chico's FAS posting an 18.3% pop and Talbots 20.4%.

Women's clothing doesn't flatter Dave Marino-Nachison, and he doesn't own any of the companies mentioned in this article. His stock holdings can be viewed online, as can the Fool's disclosure policy.

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