Piper Sandler News Releases


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MINNEAPOLIS - October 8, 2003 - U.S. Bancorp Piper Jaffray Senior Retail Analyst Jeff Klinefelter today released the results of his sixth proprietary research survey on teen spending habits and retail brand perception. Klinefelter conducted mall research field trips with nearly 700 teens from 14 high schools in 13 states across the country and one province of Canada. As a result of the survey results and a shift in brand preference, Klinefelter is changing his investment rating on four companies. He is upgrading Abercrombie & Fitch (ANF, $30.22 #>+=) from Outperform to Strong Buy and American Eagle Outfitters (AEOS, $16.50, #>=) from Market Perform to Outperform. In addition, he is downgrading Aeropostale (ARO, $30.90, #@>) from Strong Buy to Outperform and Charlotte Russe (CHIC, $10.15, #>) from Market Perform to Underperform.
"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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