Even before the recent national tragedy, the outlook for apparel retailers was grim.
The weakening in consumer confidence and a lack of fresh fashions at many companies had already ended all hope of a recovery in sales in the second half of 2001, as many had expected earlier in the year.
Now companies face the prospect of a full-blown recession.
Since trading resumed Monday, shares in apparel retailers have sold off rapidly, continuing their poor performance in the weeks before the attacks. Here's a sampler:
Gap (GPS Quote - Cramer on GPS - Stock Picks), which was already trading down substantially, is off about 21% since Monday;
Abercrombie & Fitch (ANF Quote - Cramer on ANF - Stock Picks) has lost 17%;
American Eagle Outfitters (AEOS Quote - Cramer on AEOS - Stock Picks), the poor man's Abercrombie, is off around 19%;
Pacific Sun (PSUN Quote - Cramer on PSUN - Stock Picks), which sells surf-inspired duds, is off 16%; and
Ann Taylor (ANN Quote - Cramer on ANN - Stock Picks), which investors had high hopes was in recovery mode after the hiring of two key executives, is off over 21%.
There is little hope on the horizon. Remember that prior to the attacks, some economists were predicting the
worst holiday season in a decade. On Thursday the National Retail Federation slashed its sales growth forecast for the fourth quarter by nearly 50%. Citing the psychological and economic impacts of the attacks, it now expects sales of general merchandise, apparel and furniture to rise just 2.2%, much lower than its previous forecast of 4%.
Retreat
Two investor favorites plunging since reopening |
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"There will likely be multiple short periods of disruption as Americans concentrate on the current military buildup and subsequent military actions likely to take place" in the next six to 12 months, wrote Eliot Laurence, an apparel analyst at Jefferies, in a recent report. "There is a sense that fashion and apparel are very frivolous endeavors as the country prepares for war."
Not that there is much fashion anyway. Aside from denim adorned with rhinestones, there has been little to quicken the fashion bug's pulse in American shops,
especially in the men's department.
While Wall Street analysts have slashed their earnings estimates for many of the apparel chains in recent days, executives have said little -- with the exception of American Eagle, which said its sales had returned to normal levels this week.
"What the companies are doing is sitting around wondering what the outlook is," says Candace Corlett, a partner at consulting firm WSL Strategic Retail. "They are very much wait and see."
In addition, some are nervous that a drawn-out foreign conflict could crimp their ability to keep stores stocked during the holiday season because of logistical problems, even if sales are expected to be down.
"Until I talked to a few, I didn't know how much of a challenge that is," says Candace Corlett, a partner at consulting firm WSL Strategic Retail. "They are working the logistics -- it's up to the operations people to make sure they can deliver the holiday merchandise."
Investors would be well-advised to tread lightly in this sector.
Tim Arango
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