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Monday's Investors Get Their Shares Off the Rack

Clothing: Apparel retailers, expected to report good earnings, seem to be the market's flavor of the day.


Stocks of retail clothiers including Quiksilver Inc. and Pacific Sunwear of California Inc. were in fashion among investors Monday, a move some analysts attributed in part to sector rotation--investors switching to the favorite industry of the moment.

Analysts also pointed to upcoming earnings announcements from many of the retail companies and a growing belief among many players that the Federal Reserve Board will cut interest rates by half a percentage point rather than by a quarter--and sooner rather than later.

Shares of apparel companies specifically targeting teenage consumers seemed to be having the strongest day as Quiksilver, Pacific Sunwear and Abercrombie & Fitch Co. all posted strong showings.

Quiksilver shares rose $1.83 to close at $27.73 a share, Pacific Sunwear jumped $3 to close at $35.44 a share, and Abercrombie gained $2.24 to close at $30.45.

Also enjoying gains Monday were Gap Inc., which was up $1.24 to $28.89, Ann Taylor Stores Corp., up $1.25 to $26.86, and Talbots Inc., up $3.59 to $53.20 a share.

Teen apparel makers' stocks were performing well with good reason, said analyst Jennifer Black of Wells Fargo Van Kasper.

Citing U.S. Census Bureau statistics for 2000, Black said that the teen population, which is now at more than 31 million, will grow 20% faster than the overall population.

"This many teens have not walked the earth since the baby boomers put the Beatles on the charts," Black wrote in a sector research report last Tuesday.

Teen spending power is nearly $158 billion a year, and companies like Quiksilver and Pacific Sunwear are "cool" companies, she said.

Black said teens' disposable income and the large portion of it they spend on clothing have made teen clothiers relatively immune from economic downturns and even recessions. Teenage boys spend about 52% of their money on clothes, teenage girls about 75%.

Black praised Quiksilver, which she rates a strong buy, and two of the newer clothing lines it has acquired and introduced. In March, Quiksilver acquired Hawk Designs, maker of apparel carrying the name of legendary skateboarder Tony Hawk. She also likes its Fidra golf apparel line, designed in conjunction with John Ashworth, co-founder of the noted golf clothier Ashworth.

A Quiksilver spokeswoman said the company is holding the grand opening of its first stand-alone Hawk store on March 17 at the Paramus Mall in Paramus, N.J. Quiksilver intends to open more Hawk stores, she said.

Quiksilver will report fiscal first-quarter earnings after the stock market closes March 7, said the spokeswoman.

A First Call/Thomson Financial survey of seven analysts estimates the company will have earned 14 cents a share, 4 cents shy of the year-ago period.

Wedbush Morgan Securities analyst Elizabeth Pierce said the company is down year-over-year because two surfing tournaments the company sponsors fall in the first quarter in 2001, not in the second quarter, as they had in previous years. Pierce rates the company at buy.

Deutsche Banc Alex. Brown analyst Marcia Aaron issued a cautionary note on specialty apparel retailing.

Aaron said the second-half outlook for the sector "may not be as bright as investors envision, given rapid square-footage growth over the last several years and anticipated growth this year."

The last time square-footage grew at a rapid pace--from 1992 to 1995--operating margins were under pressure and profits were weak, she wrote. A turnaround didn't occur until the square-footage contracted in 1996.

Aaron noted that Deutsche Banc's specialty apparel retailing index is up 32% since December compared with Standard & Poor's 500 average, which has slipped 1.5% during the same period.

The analyst's firm concentrates on smaller, niche-oriented retailers that focus on attractive demographics. Deutsche Banc's favorite is American Eagle Outfitters Inc., which she rates a strong buy. She said her firm is also positive on Hot Topic Inc. and Pacific Sunwear, both of which she rates buy.

American Eagle shares gained $2.69 Monday to close at $39.69, and Hot Topic ended $1 higher at $27.38.

Other retailers whose shares ended up in Monday trading include Children's Place Retail Stores Inc., which closed up $1.50 at $22.63; Limited Inc., which closed up 80 cents at $18.59; and TJX Cos., owner of T.J. Maxx stores, which finished up $1.41 at $32.08 a share.

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