Mallrats, take note: Limited Too will be “limited to” a few more operating days. Parent company Tween Brands (NYSE:TWB) is killing the concept domestically, converting most of its 560 stores into its faster-growing Justice retail vehicle.
The decision is being served up as a peace offering after the company posted dreadful quarterly results last night, but shareholders aren't buying it. The stock is getting slammed this morning, as the concept's retreat is accompanied by a hosed-down outlook for the balance of the fiscal year.
It's easy to see why Tween wants to ride the popular Justice bandwagon. The company launched Justice in 2004, and it has posted healthy comps ever since. Like Limited Too, Justice carries fashions and accessories aimed at 7-to-14 year-old girls, but at prices that average 20% to 25% lower. In a tough economy, it's no wonder to see shoppers gravitate to the more affordable outlet.
The company's fiscal second quarter is typical, with comps at Limited Too off by 11%, while Justice saw its same-store sales grow by 3%. With just 310 current locations, Justice is about to get big in a hurry. After the initial restructuring hit, Tween expects after-tax annual savings to add as much as $0.80 to $1 a share to the bottom line. Most of the savings will come from reduced headcount in the company's home office, as it streamlines to market a solitary brand stateside.
Tween Brands is serving a sweet spot in retail. It's serving an age bracket that is pretty uniform in tastes. It's an easy group to figure out, once you realize that every other phrase out of their mouths involves the Jonas Brothers.
Once the early teen years kick in, they'll move on in different directions. Some will go the cheery Abercrombie & Fitch (NYSE:ANF) or American Eagle (NYSE:AEO) route, some the laid-back surf look from Pacific Sunwear (NASDAQ:PSUN), while others may prefer the darker bent at Hot Topic (NASDAQ:HOTT). Tween's stores simply deliver the young girls to the crossroads.
And speaking of crossroads, that's where shareholders find themselves today. After posting $0.10 a share in losses through the first half of the fiscal year, Tween is looking to generate between $0.35 and $0.65 a share during the seasonally potent second half of the year. Even if you tack back on the $0.45-a-share restructuring charge, Tween won't earn more than $1 a share this year. That's a shocker to analysts, perched at the $1.75-a-share mark before last night's report.
That's got to hurt. The shift to Justice makes sense. Limited Too has been around since 1987, but it knows that batons were made to be passed. It doesn't hurt that Tween's original parent is Limited Brands (NYSE:LTD), a company that has excelled at creating and spinning off successful retail concepts.
However, one has to wonder whether Tween is overreacting to the economy. Yes, consumers crave bargains these days, but the doldrums won't last forever. The company will sell some of the Limited Too-branded wares at its Justice stores, keeping the brand alive, but it will be awkward if it has to reverse its course in a few years and replace Justice stores with Limited Too storefronts.
Oh, those fickle tweens. Remember when the Jonas Brothers went by the name "Hanson"?
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