Since summer is almost half over, it's time to think about fall fashion and the back-to-school shopping season. After all, if the fashion world is always thinking at least two seasons ahead, then Wall Street could stand to catch up. The types of merchandise that continue to sell this fall could solidify the fashion trends that marked the spring season. And there are certain retailers poised to take advantage of what consumers will want to wear once Labor Day has come and gone. "Historically, fall has been a dividing period between a trend and a fad, as the higher cost of apparel (vs. thin summer-weight items) requires a deeper monetary commitment," said Eric Beder, an analyst at JBHanauer & Co, in a recent research note. "Fall 2004 will be a key marker for the retailing world as the industry begins to anniversary the latest period of fashion excitement." Teen and fashion-forward sectors could be the biggest beneficiaries of the back-to-school season, said Beder. Color will still be hot but more muted, and accessories will continue to "complete the look." Meanwhile, denim could become less fashionable, while faux fur will likely become a fashion "do," he said. Piper Jaffray analyst Jeffrey Klinefelter expects to see colorful, preppy looks. He said in a recent research note that "the continuation of the girly look as well as a tendency toward more tailored pieces" will also characterize the fall. Limited Brands ( LTD) and Ann Taylor ( ANN) are two retailers currently profiting from these trends. The popular pink tones of summer will probably be replaced by lavender and subtle blues and greens in fall, Beder thinks. Black, always a big fashion theme, will complement layers of color, while patterns like herringbone and tweed will also be hot. Guess? ( GES), bebe stores ( BEBE) and Neiman-Marcus ( NMGa) will likely capitalize on the influence of color, Beder said.
Guess?, for one, is showing sales momentum. It recently reported a 12.7% gain in June same-store sales, ahead of the 7.4% consensus estimate. That was on top of a 14.6% increase in May and during a month when the aggregate same-store sales gain was just 2.8%, according to Thomson First Call, which tracks about 80 retailers. Another to profit from a recent trend should be Polo Ralph Lauren ( RL), whose Polo shirts have "come back from the dead," said David Wolfe, creative director at New York-based Doneger Group, a retail apparel and accessories research firm. The shirts are sold in nearly every color of the rainbow, and Wolfe noted that Polo has redesigned them to have a more tailored fit. As a result, other retailers have jumped on that bandwagon with their own embroidered logos, similar to Polo's, noted Klinefelter. They include American Eagle ( AEOS), Abercrombie & Fitch ( ANF) and Aeropostale ( ARO). Yet for the preppies to reign, many analysts have speculated that the surf and skate retailers, such as Pacific Sunwear ( PSUN), would take a fall. Indeed, Beder noted that PacSun's men's business has weakened, and the company recently posted its lowest monthly same-store sales increase since October 2003. But Klinefelter thinks the popularity of the colorful, preppy look isn't entirely bad for surf-wear companies. "The prominence of color in preppy styling actually plays into the strength of many retailers, particularly those heavy in surf-wear, as surf has tended toward color all along," he said. Additionally, PacSun recently added more woven shirts and polos to its inventory. Looking to the accessory side, Claire's Stores ( CLE) and Guess? will take advantage of increased demand for pins, brooches, necklaces and charm bracelets, Beder predicted. He also thinks faux fur will be a fashion staple for the fall, citing handbags and gloves from upscale leather retailer Coach ( COH) as expected to have fur accents. (JBHanauer & Co. does not do investment banking for the companies mentioned.)
Meanwhile, the recent resurgence in men's consumer spending will bolster the entire sector this fall, the analysts say. Preppy and conservative looks are being gobbled up by men in the form of woven shirts and suit separates, said Wolfe. J.C. Penney ( JCP), upscale menswear retailer JoS. A. Bank Clothiers ( JOSB), Guess? and Men's Wearhouse ( MW) will remain beneficiaries of the upswing. "The recovery in young men's spending will continue to drive same-store sales gains and margin recovery for several dual gender retailers during the next several quarters," said Klinefelter. (Piper Jaffray does and seeks to do business with the companies mentioned.) JoS. A. Bank, for example, said June same-store sales jumped 10.6%, easily beating the 4.2% estimate, in top of a 6.4% increase in May. The company said suits and sportswear sales were strong. There are several reasons why men have increased their shopping. First, the improved economy has made male shoppers more confident and wanting to look the part. "We're back in a time that's more aspirational," said Wolfe. "The economic picture is looking healthy, and it's cool to look like you're successful." Richard Keim, managing partner at New York-based Kensington Management Group, cited another reason. "Clothes do wear out," he said. "I strongly believe that for most people, it's a need-based thing." In the end, retailers can rest assured that the man is back, and he's spending with a vengeance. The effects of that and the preppy trend will likely shape retailers' bottom lines for the rest of the year.