Men Might Dress for Success, but It's Not in Excess, Dampening Sales

With the fashion savvy among us having declared the corporate uniform of khakis-and-polos a relic of the dot-com heyday, one would expect men to be refilling their closets with jazzier attire.

But they're not, and that has dampened earnings at many of the nation's retailers. The common thread among virtually all retailers that have reported quarterly earnings thus far is that the men's clothing business is terrible. In conference call after conference call analysts have drilled executives about what's dragged down the men's apparel business and whether they foresee improvement.

In comments typical of most executives, Heidi Kunz, Gap's (GPS - Cramer's Take - Stockpickr) chief financial officer, said in a conference call Thursday that "the men's business is weak within all our divisions. We are heavily focused on bringing some newness into men's."

The issue also arose during Federated Department Stores' (FD - Cramer's Take - Stockpickr) earnings call. "We are disappointed with our men's business," said CFO Karen Hoguet. "I wish I had a good read on it."

Placing Blame

Those in the industry blame two factors: the sagging economy, which many say has a greater effect on men's clothing expenditures than on women's apparel expenditures; and a lack of fashion innovation, especially in slacks, which typically provide better profit margins.

But like that second-half recovery that many have come to expect, executives and analysts are predicting a resurgence in the men's business in the fall, driven by back-to-school sales and a move toward dressier attire in the workplace, a trend in its early stages that industry-watchers say will play out in the next six to nine months.

And some Wall Street analysts are basing their bullish views on apparel retailers, at least in part, on an expected boost in the men's business.

"The reason in my opinion that the men's business is weaker now is that there is not a lot of newness," says Mark Minsky, general merchandise manager for men's and children's at Doneger Group, a fashion merchandising and consulting firm in New York.

One retail analyst agrees. "The big downturn in men's has been in pants," says Todd Slater, an analyst at Lazard Freres. "There are no must-haves." Nothing, he says, has replaced cargo or paratroop pants, hot items that drove the men's business in recent years.

On the Other Side

Women's, meanwhile, has flourished at many companies. "At least for women, there's more fashion interest in accessories and apparel," Slater wrote in a recent report, "Scenes from the Mall." He adds: "For example, we came across a wide variety of floral and tropical prints in bright colors such as orange and lime green. Pastel colors like mint blue and seafoam, new last year, are this year's basics."

Says Minsky: "There's an awful lot going on in the women's business."

Total Apparel Men's vs. women's

Source: NPDFashionworld Consumer

While the downturn in the men's business has been virtually across the board, the effect on individual companies' overall operations varies. For example, at Gap and Federated, it's just one of many problems that have plagued them in recent years, albeit one that if solved could give a strong boost to sales. And at teen-oriented retailer Abercrombie & Fitch (ANF - Cramer's Take - Stockpickr), the company has been able to compensate for the downturn in men's with strong growth in its women's division.

"Women's continues to drive the business," Abercrombie's Chief Operating Officer Seth Johnson said in a recent conference call. "It's a very difficult cycle. I'm hopeful for back-to-school, but I can't promise."

Abercrombie saw its men's division post a decline in same-store sales in the fiscal first quarter, yet posted healthy earnings on the back of stronger-than-expected sales in women's. Women's clothing now accounts for 55% of the company's business, compared with less than half just a year ago.

In a recent note, Jennifer Black, an analyst at Wells Fargo Van Kasper, raised her 12-month price target for the company to $56 from $49. "The company still has significant opportunities in its men's and kids' businesses," she wrote. (Black has a strong-buy rating on Abercrombie, and her firm hasn't done underwriting for the company.)

At Gap, women's will continue to drive the business until the fall, when back-to-school fashions should boost men's, says Black. (She also has a strong buy rating on Gap, and her firm has had a banking relationship with the company.)