Spring Retail: Coloring In

Specialty chains that sell anything other than black should do well this quarter.
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This year, fashion will define what's in by what's out: black.

And analysts believe some apparel retailers are better positioned than others to capitalize on color -- an advantage that could accrue to their stocks going into the next round of quarterly earnings, which begins in April.

This season's retail fashion trends reflect a newfound creativity among consumers, analysts said. Toward the second half of last year, "people had a breakout in personal appearance," said Richard Hastings, a retail economist at Bernard Sands. They care more about what they look like, down to their necklaces with brightly colored stones or highly sought-after UGG sheepskin boots.

"Retailers are getting a benefit," Hastings said.

Not only are consumers eager to scoop up new trends, but manufacturers have figured out how to deliver them. "There's more of a science behind

fashion than in the past," said Hastings. "We have so much more knowledge about how to cut the product and what fabric shapes the body in a certain way."

Thanks to the Internet, clothes don't sit on shelves as long, said Eric Beder, an analyst at Northeast Securities. "You can see Milan right there," Beder said. "People can be just as fashionable in Des Moines, Iowa as in New York City."

David Wolfe, creative director at New York-based retail apparel and accessory analysis company Doneger Group, agreed. "Fashion is alive and well," he said at a recent National Retail Federation conference. Nowadays, he said, "casual does not mean 'young,' and chic does not mean 'old.'"

Wolfe cited simple styles for the spring but warned that "simple does not mean black." Blue and other calming colors will be hot, he said.

Bright colors, prints and floral patterns will be in this spring, agreed UBS analyst Linda Kristiansen. The trends, she said, "differ from what women currently have in their closets," which can only lead to one thing: shopping.

Among the potential winners is mall-based specialty retailer

bebe stores

(BEBE)

, which sells sexy clothing to 18- to 34-year-olds, Beder said. The company introduced pink, yellow and light blue clothes in early January.

Trading at 27.4 times 2004 expected earnings and 22.7 times 2005 expected earnings, Beder said, "Investors could reward bebe with a premium multiple, as the company once again begins to register consistent top- and bottom-line growth."

He also thinks that based on his review of spring trends, the company is conservative in its current third-quarter guidance, which falls below analysts' 9-cents-a-share estimate. The company said on Jan. 22 that it expects to earn 4 cents to 7 cents a share in the third quarter, with same-store sales in the low-to-mid-single-digit range.

Shares of bebe are currently up 69% from a year ago, but are off their 52-week high of $32 hit on Oct. 9.

Guess?

(GES) - Get Report

and

Wet Seal

(WTSLA)

, each in the midst of turnarounds, are two more companies Beder expects to benefit from colorful product lineups.

Another potential winner is

Neiman Marcus

(NMGA)

, a chain that is already benefiting from consumers' new taste for luxury. Kristiansen expects consumer spending at the retailer to increase come spring, especially as fashion turns away from the color black.

"Neiman Marcus' fashion-savvy consumer will likely need to spend more this spring season now that black is becoming less fashionable," she said. "Positive response to

Neiman Marcus' resort line now in stores is a favorable omen."

On the losing end, Beder said, could be

Abercrombie & Fitch

(ANF) - Get Report

,

American Eagle Outfitters

(AEOS)

and

Pacific Sunwear

(PSUN)

, purveyors of "surfer" and "skater" casual looks. While Beder thinks they will eventually shift to more interesting fashion, "spring won't be the turnaround they're looking for."

Usually, high-end retailers pick up fashion trends first and are followed by the teen retailers, according to Beder. "It takes a season to roll forward. This trend, if it has legs, will be in for at least a year or two," he said. "It will then go down to the

Targets

(TGT) - Get Report

of the world."