Blog: Tween Brands pins its hopes on Justice
Leonie Barrie | 14 August 2008
Plans by Tween Brands to convert its Limited Too stores to the lower-priced Justice format seem to have gone down like a lead balloon. Shares hit an all-time low yesterday, after analysts were less than impressed with the teen apparel retailer’s second quarter loss and asked whether it was being a bit impulsive in scrapping its 560 Limited Too stores.
The move was intended to appease the market after it swung to a second quarter loss of $7.6m from a profit of $2.1m last time. An 8% slump in same-store sales was also given as evidence that consumers are trading down to lower-priced goods. Same-store sales dropped 11% at Limited Too but rose 3% at Justice where price tags are 20-25% lower.
Tween Brands said the change is the right one in “tough economic times” when customers are trading down to lower-priced goods. But analysts aren’t so sure. They wonder whether the plan could be an over-reaction to the second-quarter earnings miss, whether Tween could have captured more value by selling the Limited Too chain, and whether Justice can drive the same mall traffic without the iconic 'Limited Too' brand name.
But most of all there seems to be concern over the disappearance of the Limited Too nameplate altogether. After all, the chain has nearly 600 stores compared to Justice’s 310. Quarterly sales at Limited Too were $145.0m while Justice generated $69.3m. A selective conversion of Limited Too stores and a smaller Limited Too chain would have been a less bitter pill to swallow.
It's easy to see why Tween wants to jump onto the Justice bandwagon, which has generated double-digit comp store sales growth year after year since the first store opened in 2004.
But it’s also worth noting that some of Limited Too’s problems are due to its merchandise, such as “a lack of spring colour within its sportswear assortment,” and “the absence of a meaningful casual bottoms business.” And that investments from fiscal 2005 to 2007 to differentiate Justice and Limited Too have suppressed operating income growth to just 2%, even though overall net sales at Tween Brands have increased 34%.
It’s equally important to remember that bad economic times won’t last forever – and that when consumers eventually decide to trade up they may well have to look elsewhere.
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