Some apparel chains shine amid dim results

NEW YORK (Reuters) - Complaints of weak customer traffic were a common refrain as U.S. specialty apparel retailers reported February sales on Thursday, but a handful of chains catering to a bargain-seeking youthful clientele managed to outperform in a tough climate.

In addition to the recession warning signs that have shoppers keeping a tight hold on their wallets, clothing chains have had to contend with an absence of any must-have fashion items that spark consumers to update their wardrobes.

Women's apparel retailers catering to women 35 and older, who are seen less likely to spend on themselves during periods of economic weakness, were hardest hit.

"No one is seeing anything that they absolutely have to buy," said Patricia Edwards, managing director at investment firm Wentworth Hauser and Violich. "There's nothing overly compelling in the merchandise. Unless its compelling, they're not buying unless it is on sale."

Christopher & Banks Corp (CBK.N) said sales at stores open at least a year fell 3.5 percent in the fourth quarter and 5 percent in the February period, which both ended on March 1, and cut its 2008 earnings forecast. Rival Coldwater Creek Inc (CWTR.O) on Wednesday gave a disappointing outlook for the current quarter and full year.

Shares of Coldwater Creek tumbled 21.4 percent to $3.96 and Christopher & Banks shares dropped 16.3 percent to $8.85.

Chico's FAS (CHS.N), which also sells clothes to mature women, reported a bigger-than-expected drop in February same-store sales on Wednesday and forecast lower earnings for the first half of 2008.

HEFTY MARKDOWNS

AnnTaylor Stores Corp (ANN.N) reported an 8.7 percent decline at its namesake Ann Taylor chain, where hefty markdowns were needed to clear dull January and February fashions, but at its more casual, less expensive LOFT stores, comparable sales rose 2.8 percent.

Likewise, Gap Inc's (GPS.N) Banana Republic chain saw same-store sales decline 5 percent, while its less expensive Gap stores saw same-store sales fall a more modest 3 percent.

Among teen retailers, Aeropostale Inc (ARO.N) fared much better than its pricier rivals, American Eagle Outfitters Inc (AEO.N) and Abercrombie & Fitch Co (ANF.N).

Aeropostale posted a better-than-expected 7 percent increase in sales at established stores as its new spring collection inspired customers to spend.

"Aero, with both their key competitors posting negative comps, is officially the star of the teen shopping segment," wrote Eric Beder, analyst at Brean Murray Carret & Co, in a research note, "as their shift to more fashionable items and the addition/expansion of higher margin categories such as dresses and cargo shorts, has borne fruit."

Abercrombie & Fitch posted a wider-than-expected 2 percent dip in comparable sales. The biggest drag on the company was sales at its RUEHL chain, which features higher-priced clothing aimed at 22- to 30-year-olds.

American Eagle blamed thin traffic and weak demand for women's fashions for a bigger-than-expected drop in February same-store sales. The company also gave a first-quarter earnings outlook below analysts' estimates and said it expects comparable sales to continue to decline in the period.

"Eagle's product, frankly, just looks OK. That's not enough to command full price (in this climate)," said Christine Chen, an apparel analyst at Needham & Co, who downgraded the stock to "underperform" on Thursday.

Shares of American Eagle sank nearly 17 percent. Shares of Abercrombie and Aeropostale both fell about 6.5 percent.

One of the next-best performers after Aeropostale was Pacific Sunwear of California Inc (PSUN.O). The surfwear inspired retailer reported a same-store sales increase of 6 percent, well above the 1.6 percent gain analysts were forecasting.

"Both Aero and Pacific Sun have the right product, but they're also a good value," Chen said. "Yes, the economy is contributing, but if the product looks better and the price is lower, that's a no-brainer."

(Editing by Brian Moss)