Yahoo Finance Why back-to-school is different this year
The kids may dread it but for retailers, particularly teen apparel chains, back-to-school is one of the most important times of the year.
For the three giants of teen retail Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), and Aeropostale (ARO) – and their investors – this season could be crucial. While American Eagle Outfitters is up 22% year-to-date, Abercrombie & Fitch and Aeropostale have suffered, dropping 30% and 54%, respectively.
However, this year will be a little different. Not only is the 2015 school year starting later than usual but technology has also transformed the traditional back-to-school season, notes Stephens retail analyst Rick Patel.
“What’s changed is that technology has really come to the forefront when it comes to the shopping experience,” he said. “We’ve seen the word ‘ominchannel’ being thrown around a lot by these retailers. What it basically means is that the teen is increasingly relying on shopping online for their back-to-school needs.”
Teen-oriented retailers still see an increase in sales in the weeks running up to the new school year. “But it just seems to shift out later and later every year,” said Patel.
Labor Day 2015 falls on September 7, the latest date possible on the calendar for the holiday. Many school districts tie their school year to Labor Day, meaning this year will see a later school year for many students.
“It’s already had somewhat of an impact on the companies’ results,” Patel said. “Most of the teen retailers have already reported second-quarter results. What we’ve seen for the most part is that July has been somewhat softer than expected for some of them.”
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Instead, August and September may turn out to be a little stronger, he added. “It seems like the third quarter is benefiting at the expense of the second quarter.”
The calendar and the Internet aren’t the only things affecting teen retailers’ results. They now face tough competition from overseas fast fashion companies like Sweden’s Hennes & Mauritz (HMSB.DE), Japan’s Uniqlo, and this fall’s latest entrant in the U.S. market, Ireland’s Primark.
“This has been a structural headwind for most of the industry and I really don’t see it going away any time soon,” said Patel. “Competition from the fast fashion is only going to get tougher. I think it’s going to be increasingly important for the U.S. teen retailers to offer not just a great value but also be on trend. “
Patel maintains an "equal-weight" rating on American Eagle Outfitters and Aeropostale, and has an "underweight" rating on Abercrombie & Fitch based on their valuations.
“What we’d like to see is somewhat of a pullback in one of those stocks before we would get more constructive on it,” he said “We think American Eagle is by far the strongest retailer this back-to-school season. It has the right products, value proposition, and inventories appear to be in good shape. But I also think a lot of these benefits are also baked into the stock price so we’d like to see somewhat of a pullback before we get more bullish on it.”
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