For Subscribers

Get the complete article now!

Three analysts and top management from ten sector firms examine the apparel sector in this special 54-page Apparel Retailers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info441.htm

TWST: You mentioned earlier that there’s nothing new out there as far as fashion trends go. What then are companies putting out to attract consumers? What is being promoted as the next “must have”?

Ms. Pak: You know what we went through for back-to-school — and what they’re all trying to mark down now! — was denim. Denim was the must-have item. And it’s not new enough. I don’t see any must-have item that’s really catching on that’s going to drive the business. Oh, we went to a new, very low-cut denim, but how many people can wear that? And even if low-cut denim is new, how new is denim? What really drives this business is something brand new like the paratroop pants. I mean, we had never before seen pants with pockets all over them — when we had the cargo phase, or pants with elastic at the bottom that looked like paratroop pants. It’s when we go from wide-leg to straight-leg, that’s what really drives apparel sales — and particularly on the men’s side, because they don’t go out and buy something unless you whack them over the head and it’s so big and so important they look hopelessly out of style. That’s the only thing that really gets men buying. And I don’t see anything like that this season. What I do see are tremendous markdowns already starting that are going to accelerate further, particularly when you think about all of these retailers’ inability to cut inventory levels after the September 11 attacks.

TWST: As we look out toward the end of 2001 and into 2002, how are you approaching the group?

Ms. Pak: Very, very cautiously. I think that estimates need to come down rather aggressively in Q3 and Q4 still and that estimates certainly need to come down in 2002. I think it’s highly unlikely that the macro picture will be “back to normal” at the beginning of 2002. So I think it makes sense to maintain a cautious stance, given the level that many of these stocks have come back to. I mean, one thing that’s kind of interesting is to note the price at which such-and-such company is trading today versus where it was at September 10, the day before the attacks. Many of these stocks have come back to pre-attack levels, if not surpassed pre-attack levels. And I throw it back to you and your readers: does that make sense? How can you possibly argue that the macro picture isn’t worse than it was on September 10 and that earnings haven’t had to come down since September 11?

TWST: Since the attacks, there has been a growing sentiment of “save the country, get out there and spend.” Is this having any impact?

Ms. Pak: I think there’s some pent-up demand, yes. I was stuck in New York City that week that it happened, and in the first several days I was just sitting there watching CNN the entire time in my hotel room. I began to lose my mind and get sort of paranoid about what was going on outside. Then I just had to get outside of my hotel room and see that people were actually still normal out there.

TWST: Are there any stocks which may not be performing well today, but that you feel could surprise investors long term?

Ms. Pak: Well, those are Abercrombie (NYSE:ANF) and Ann (NYSE:ANN) that I am recommending now. Some people have taken a look at a name like Intimate Brands (NYSE:IBI), and maybe that’s one that will turn around going forward. They certainly have a solid balance sheet, and that’s a plus. But I have some questions about their brands near term.

TWST: What is your final message to investors interested in the retail apparel industry today?

Ms. Pak: Wait, wait, don’t get caught up looking through the valley. Focus on the consumer, focus on the jobs, focus on income, let the estimates come down. I think you’re going to get a better chance to buy the group.

This special issue includes:

1) Softline Retailers - In an in-depth (2,900 words) Analyst Interview, Mercedes Sanchez, Vice President in the Equity Research Department at Raymond James & Associates, examines the outlook for the sector and shares specific stock recommendations.

2) Outlook for Apparel Retailers - In an in-depth (4,200 words) Analyst Interview, Lauri A. Brunner, Vice President of Equity Research Analyst at Dain Rauscher Wessels, examines the outlook for the sector and shares specific stock recommendations.

3) Apparel Stocks - In an in-depth (4,200 words) Analyst Interview, Stacy Pak, First Vice President at Prudential Securities, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of nine sector firms examine the outlook for their firm and the sector.