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"Despite lackluster same-store sales, we are raising our rating on Abercrombie & Fitch and American Eagle Outfitters based on the results of this survey as well as the companies' trading valuations," said Klinefelter. "Additionally, while we continue to believe in Aeropostale's longer-term growth prospects and second-half earnings potential, we believe an Outperform rating is appropriate at current valuations. Our survey also shows that Charlotte Russe fell to 11th place from eighth in the spring 2003 survey. This shift in the ranking along with competition and the disruption of the design process following the recent departure of the company's chief merchandising officer, has caused us to take down our rating a notch to Underperform."
Brand Preferences Survey Results:
Klinefelter surveyed teens on their favorite places to shop as well as their
spending habits. Based on their responses, Abercrombie & Fitch remains the
most frequent overall destination for the fifth survey in a row grabbing 15
percent of the total votes, which is an increase from 12 percent in the spring
2003 survey. There was a tie for second between Pacific Sunwear of California
(PSUN, Strong Buy, $23.38, #>) and American Eagle Outfitters, both with eight
percent of the votes. Last spring, the teens chose Limited's Express unit (LTD,
Market Perform, $16.35, #=) as their second favorite place to shop, followed
by Pacific Sunwear. This fall, Limited's Express unit finished fourth, with
seven percent of the votes.
Several other brands shifted rankings in the past six months according to the
students. Abercrombie's Hollister concept remained in fifth place, but moved
from sixth to third in the ranking for females. Also Gap (GPS, Outperform, $18.38,
#>=) moved from ninth in the spring survey to sixth this season in the overall
ranking for both males and females. Gap's Old Navy unit also moved up from the
spring survey, going from 10th to seventh. In addition, Target (TGT, Strong
Buy, $39.69, #>=) made the top 10 list for males, finishing in a tie for
seventh in the ranking.
Gen Y - Teen Spending Increases
Total spending on fashion products (apparel, shoes and accessories) increased
by 24 percent to $1,742 annually on a sequential basis, versus spring 2003.
In addition, on a year-over-year basis total spending increased by a significant
50 percent. Spending trends for females mirrored those of the total teen survey
and were strongest for apparel and accessories. Total fashion spending for females
increased 25 percent, versus the spring 2003 season and 46 percent, versus the
fall 2002 season. Spending trends for males continue to be challenging with
the exception of the accessories category. Total spending for males on the fashion
category declined 10 percent on a sequential basis and six percent on a year-over-year
basis.
Yearly spending among teens in this season's survey was $1,742, up from $1,400
in spring 2003. In fall 2002, yearly spending was $1,156. In fall 2003, females
spent $1,964 compared with $1,572 in spring 2003 and $1,342 in fall 2002. Males
spent $834 in fall 2003, compared with $925 in spring 2003 and $890 in fall
2002.
"We are encouraged to see the fashion spending increases on both a year-over-year
and sequential basis and believe it is further evidence that the apparel industry
has hit an 'inflection point' and is gradually beginning to expand," said
Klinefelter.
Parents' Contribution to Teen Spending Remains Flat
In addition to surveying the students on their spending patterns this spring,
Klinefelter also surveyed 186 parents, eliciting a 27 percent overall response
rate. According to the data, parents have increased their apparel spending on
their teens by 47 percent from last fall and by 57 percent from spring 2003.
In addition, parents have increased spending on apparel for themselves by 47
percent from last fall and by 58 percent from spring 2003.
"We believe that part of this increase in spending can be tied to the strong
performance of the stock market over the past year and six months, as the majority
of these families have a vested interest in the market," said Klinefelter.
Parents' favorite place to shop remained Nordstrom (JWN, not rated, $27) with
14.9 percent of parents rating it number one. Kohl's (KSS, Market Perform, $55.50,
#>@=) and Macy's (FD, not rated, $44.64) tied for second (each with six percent
of the vote). J.C. Penney (JCP, Market Perform, $22, #>), which ranked third
in our spring 2003 survey, fell to seventh place, as some higher-end retailers
such as Chico's (CHS, Outperform, $33.26, #>) and Christopher Banks (CBK,
not rated, $28.21) moved up in the ranks. In addition, parents continue to favor
specialty retailers when purchasing clothes for their teenage children. Abercrombie
& Fitch and Old Navy ranked first and second, respectively, as specialty
apparel companies held five of the top seven spots in our latest parent survey.
Total Spending
A key component of the survey asked the students to identify what percentage
of their disposable income they spend on video games/systems, music/movies (DVDs,
CDs), electronic gadgets, clothing, accessories/personal care, shoes, food,
concerts/movies, car, books/magazines and other. This fall, clothing remains
the most frequently shopped and purchased category, followed by food and accessories/personal
care. On average, teens shop for fashion-related products four times per year,
with female and male students both maintaining an average of four times. The
video games and hardware category continues to register a shopping frequency
of approximately two times per month although the frequency dropped for male
students and increased for female students. Music and movies (DVDs/CDs) are
also frequently shopped and purchased products by teen customers; despite the
fact that many students also indicated that they download music on the Internet.
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