Ms. Whitfield: In the first half of this year, the retailers' bottom line has been buoyed by very strong expense and inventory controls. The top line has been anemic. In the second half, we look forward to easier comparisons, starting in September. We look for continuation of strong expense and inventory controls. For those that have overseas exposure, currency should be less onerous starting this fall. And of course sourcing should benefit retailers starting this fall and into the spring of next year, with lower costs driven by lower demand and hence excess capacity. There certainly are winners in the space, still. Our favorite name in children's apparel continues to be Gymboree (GYMB). In the teen space, we have been recommending Aeropostale (ARO). In the boomer space, Chico's (CHS) has been our favorite name, and for menswear we have been recommending Jos. A. Bank (JOSB). It's all about market share, and we see that the companies that offer the right promotions and strong value to consumers are the ones that are winning the war currently.
TWST: Tell me a little bit more about Gymboree.
Ms. Whitfield: Gymboree reported a very strong quarter on Aug. 20 after raising
guidance throughout the period. They have three different concepts - Janie and
Jack, at the high end, actually has been affected the most by the recession.
They have seen better activity of late, but the consumer there is still buying
on clearance, not as much at full price as the company would like. They have
Gymboree core, which has an income level probably close to $75,000 or $85,000,
and here they have been doing well in attracting new consumers by focusing on
newborn, extending sizes and offering value deals at the front of the store to
attract new shoppers. They have had a very good start to their back-to-school
season. They also have a new unit called Crazy 8, which is their value concept
that goes up against Old Navy (GPS) and Children's Place (PLCE), and they seem
to be making strides there. In fact, the unit should be breakeven in Q3 and
possibly make some money next year. They have expanded the store openings for
Crazy 8 to 28 this year and will do a minimum of 50 next year, which should
bring the total store count next year to about a 100. Over time this concept
could build to be many hundreds of stores, say 500 or 600. This is a big market,
of course, because it's more value driven. They seem to be managing well
throughout a very difficult period, and we believe they are picking up share,
which has been their goal.
Tickers included in this excerpt: AEO, ARO, BKE, CHS, CWTR, GES, GPS, GYMB, JOSB, KSS, MW, PLCE, TGT
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