What’s hip on Wall Street these days? Investors are finding safe havens in companies that cater to young people more influenced by music and skateboarders than interest rates and energy woes.
Teen-targeted retailers such as Pacific Sunwear of California Inc., Quiksilver Inc., Vans Inc., Wet Seal Inc. and Hot Topic Inc. have a niche that appears to be almost recession-proof.
“Teens are oblivious to interest rates and a slowing economy that the rest of us pay attention to,” said Dennis Van Zelfden, an analyst at Atlanta-based Robinson-Humphrey Co. “They are the last affected by any kind of a slowdown. It would really have to slow down for teens to feel it meaningfully.”
Despite an overall slump in retail sales and waning consumer confidence since last June, several teen-oriented Orange County companies are reporting impressive gains.
“I can’t think of anybody (who caters to teens) who is not doing well,” Van Zelfden said.
And these companies have not gone unnoticed by investors. While the S & P; Retail Index has been bouncing back and forth year-to-date, some teen-oriented retail stocks remained steady or continued to grow after the Federal Reserve slashed interest rates by 50 basis points.
“Retail stocks in general tend to move up when interest rates go down,” Van Zelfden said. “It’s already been cut twice and there’s one more coming this week so that has contributed to a favorable outlook for the retail sector.”
In an industry that saw a modest 2% sales gain last year as consumers pondered an economic slowdown, with some retailers like department stores posting declines, some teen specialty retailers are reporting double-digit increases.
The 587-unit Pacific Sunwear, which sells branded clothing such as Billabong and Quiksilver as well as its own labels, saw its stock price shoot up four points last week to the 29 level. Year-to-date, the stock price has grown from the 23 level and is well ahead of its 52-week low of around 11, set in June. Pacific Sunwear reported a 20% gain in earnings to $14 million for the fourth quarter ended Feb. 4, on sales of $181.2 million, an increase of 38.4% from its previous fourth quarter. For the fiscal year, Pacific Sunwear reported earnings up 12% to $39.8 million on sales of $589.4 million, the latter a 34.9% gain over the prior year.
Four retail analysts recently raised their recommendations to “buy” or “strong buy” for the Anaheim-based company.
Meanwhile, surfwear maker Quiksilver has seen its stock price grow from roughly 18 to 28 year-to-date. The company recently reported a 16.2% increase in sales to $515.6 million for the fiscal year ended Oct. 31 and a 21.9% increase in fiscal first quarter sales.
The Huntington Beach-based manufacturer of apparel and related goods, which also operates a retail chain, recently received upgrades from three analysts.
Foothill Ranch-based Wet Seal Inc.’s stock price soared from about 20 at the first of the year to roughly 37 in February before falling back to the 25 level two weeks ago. The 552-unit retailer, whose sales were up 10.6% to $580.1 million for the fiscal year ended Feb. 3, was trading in the high 20s last week.
Wet Seal’s swing also follows recent reports that it plans to purchase the 19-unit young teen-oriented Zutopia chain from Gymboree Corp. and that it would discontinue its 26-unit chain of unisex Limbo Lounge stores.
Santa Fe Springs-based Vans Inc., which targets young people with its footwear and mall-based skateboard park operations, has seen its stock price climb from roughly 16 in January to the 22 level. Total U.S. sales grew 28.4% to $52.1 million for its second quarter ended Nov. 25, with international sales up 16.2% to $21.1 million. n
