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Undressed: Trouble in Women’s Clothing
It may be time to get short women’s clothing retailers until they report earnings in January. The New York times is out this morning with a story on an ominous economic sign. Women’s spending on clothing is down 6% in the first half of the Christmas shopping season compared to last year.
My short ideas to play this idea are Urban Outfitters (URBN) which primarily focuses on women’s clothing. The stock is richly valued on an P/EBITDA and P/E basis considering its low EBITDA margins and low ROE. Seems like high multiples given how crowded and competitive their niche is and a buyout of this company is impossible now given the state of the debt markets.
Saks (SKS) is also richly valued and I would suspect that their same store sales will be down significantly. They did have a phenomenal 3rd quarter but I can’t see them sustaining momentum in a slowing economy especially since they have publicly said that they have seen pressure on lower income clients. I know global luxury spending is growing but SKS only has stores in the U.S. The wealthy will also be cutting back on purchases this holiday facing smaller bonuses, smaller home equity, and less job security.
Macy’s (M) also would seem like a good short since the company has really scaled back its forecasted sales. However, the stock is pretty oversold and has taken a beating recently. There may be some bargain hunters jumping on this one. This post from Customers are Always about Macy’s is interesting. An LBO of Macy’s is off the table, it is just too big given the leveraged loan markets weakness. The LBO math also doesn’t work even if you set up a separate entity to issues CMBS on the real estate holdings. Although, if the price of the stock falls further it may begin to work.
The New York times suggests Chico (CHS) which seems fairly valued given the bad forward outlook and Ann Taylor (ANN). Both focus exclusively on women’s clothing aimed at the middle and upper class.
Obviously the bigger story in The Times story is that the consumer is under pressure. If households are worried about losing their house the last thing the mother is going to do is spend money on clothes for herself.
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Maybe if they’d make clothes for ‘real’ women and not target mini barbie sizes, we’d be out buying a lot more! I’m a size 6, and I can’t get half the items at those stores up past my thighs! I never feel fat (because I’m not) until I go clothes shopping.
Totally agree with Blessed1 on this… IF, and only if these companies would start selling real clothes for real women (read - real sizes) things would start looking better for them - and most probably for us too
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[...] are unable to take out more home equity or refinance for more cash they will cut down on spending (See my related story on the drop-off in women’s clothing purchases). Remember that consumer spending accounts for about 70% of economic activity in the [...]
Interesting, guess I wonder if guess will be accurate.
I tried to drop a card on your site, but wasn’t able to find one. Where is it?
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