Fighting for back-to-school dollars

With budgets of both teens and their parents tight, who are the losers and winners among retailers?

By Stock Traders Daily Aug 26, 2013 10:50AM

Teen girl shopping © Vicky Kasala, Photodisc, Getty ImagesBy Neal Rau, Stock Traders Daily

It's back to school shopping season again and this year many retailers are struggling to get the attention of teenage shoppers. Teen shoppers are responsible for a huge amount of sales for retailers -- they spend around $200 billion on average every year. Top teen retailers like Aeropostale (ARO) and Abercrombie & Fitch (ANF) reported disappointing earnings last week and the stocks are getting hit hard. If some of the most popular teen retailers are not getting teens into stores, where are the teens shopping and what stocks are benefiting?

The overall teen sector has been hurt by the high teen unemployment rate in the U.S., which is about 24% in the 16-19 age range. This might be pushing teens away from the big malls as they seek out value retailers. Outside of just teen's ability to spend, their clothing purchases are tied closely to how much their parents are willing to spend.

Teens might be looking for a price break on back to school clothing this year but they aren't going to J.C. Penney (JCP) or Sears (SHLD), both of which reported disappointing results recently, and both of which have been on a steady decline for years. There have not been too many winners among clothing retailers this year as evident by recent stock performances. Abercrombie & Fitch fell 18% after reporting earnings on Thursday and Aeropostale's stock fell over 20% after reporting earnings on Friday. As a result, both stocks broke below long-term support as defined by Stock Traders Daily, and that's a red flag.

One bright spot among clothing retailers has been The TJX Companies (TJX). The stock rose about 7% after releasing stellar second quarter results earlier this week. The company delivered 8% net sales growth, reported a 4% increase in comparable stores sales and raised full year guidance. The stock was testing support ahead of earnings, and support held after a move higher off a very positive earnings report. Stock Traders Daily has TJX as "neutral" long-term. We expect the stock to continue higher until resistance is tested, but support has already been tested and by rule we are not buyers in the middle of a channel. By limiting investment decisions to tests of support we better manage risk.

T.J. Maxx and Ross Stores (ROST) both offer brand-name clothing at discounted prices. The companies' stores bring teen consumers the best of both worlds because they can get trendy, up-to-date designer names, and get them at a deeper discount than even big department store discounters can offer. Both discount retailers could benefit into the holiday season if the consumer remains cautious and continues to avoid the high price mall retailers.

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