Top publicly traded specialty retailers, ranked by most recent annual gross margins.
When sizing up a retailer, scrutinizing gross margins is essential. The numbers tell the story, measuring how well a retailer buys and sells at the best price. Climbing gross margins means a company is either cutting costs or getting higher prices for its goods. Just ask Abercrombie & Fitch, which scored a 66.49 percent gross margin by relentlessly catering to its core teen niche. It and American Eagle Outfitters had strong back-to-school sales, which will pump up margins this year. Overall, every company here handily beat the WWD industry gross margin rate for specialty retailers, which is 39.49 percent. — Constance Gustke
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1. Abercrombie & Fitch co.
Gross profit margin: 66.49 percent
“We go after the cool kids,” A&F chief executive officer Mike Jeffries told Salon magazine in January, explaining why his polo shirts and jeans sell. The result: lean inventory and fast turns, which equal high gross margins. These practices, and the fact that Jeffries himself embodies the perfect blend of business and creativity smarts that propel margins, explain why A&F landed in the number-one slot here. Margin rates are inching up this year, too, buoyed by lower markdowns.
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2. Chico’s FAS Inc.
61.02 percent
Shifting sales mixes within a brand boosted Chico’s margins last year, said company reports. The reason: The Chico’s brand has significantly higher margins than its Soma or Fitigues offerings. This spring, the retailer began moving its Soma lingerie inventory onto new enterprise resource planning software — part of a company-wide technology makeover — to speed growth and replenishment demands. Chico’s will need an ace or two up its sleeve this year, though, as its long-term growth slows. Even ceo Scott Edmonds admitted there was a “lack of wear-now merchandise.” Sales of embroidered jackets have slumped the most.
3. Claire’s Stores Inc.
54.31 percent
This Wall Street darling, run by two sisters, enjoys consistently high sales and margins. Since taking the company reins in 2002, Marla and Bonnie Schaefer — daughters of the founder — have reorganized the retailer, hired its first chief information officer and done market research to make sure they create the right merchandise mix. Consequently, gross margins are soaring, hovering over 45 percent for the past few years. Strong sales on items like high-margin rhinestone jewelry helps.
4. AnnTaylor Stores Corp.
50.94 percent
By monitoring inventory turnover, markdowns and sell-throughs, Ann Taylor scores high margins. The momentum is continuing this year with even stronger margins due to more “full-price selling,” said Ann Taylor’s president and ceo Kay Krill. She added the “assortment in each division was brand appropriate,” which helped improve the retailer’s inventory of updated classics. Krill has coaxed sales by creating brand books for Ann Taylor and the Loft that “really defined the iconic customer” — the professional market.
5. Mothers Work Inc.
50.6 percent
Motherhood suits this retailer. It was started by Rebecca Matthias — now president and chief operating officer — who saw that fashion-starved mothers-to-be would snap up well designed maternity clothes. Brands include Destination Maternity (a maternity superstore), Two Hearts (only available at Sears), A Pea in the Pod (luxe designer brands) and even a maternity spa called Edaname. Still, the company said “the oversupply of maternity apparel” affected net margins in 2005, which declined slightly. This year, Mothers Work is partly focusing on its superstores, which have lower operating expenses that hike profit margins over time.
6. Bebe Stores Inc.
49.65 percent
Remember Ally McBeal? Calista Flockhart wore Bebe minisuits while playing her hip character. And she sums up Bebe’s customer: smart and classy. Thus, the chic retailer’s target customers — ages 21 to 35 — feeds sales growth, turnover and thus, gross margins. Bebe’s 2006 gross margins are holding strong, aided by more fuller-priced selling. That Eva Longoria wore Bebe’s sexy separates on “Desperate Housewives” doesn’t hurt, either.
7. American Eagle Outfitters INC.
46.5 percent
Graphic T-shirts and denim fuel American Eagle’s profits. American Eagle beat analysts’ estimates with an 11 percent increase in same-store sales last August, making the most of back-to-school sales. After nearly tanking in 2003 by stocking outdated apparel, the company began forging a strong connection to its quixotic 15- to 25-year-old customers. The result: focus groups where kids are queried, stores with couches for hanging out and Oracle systems technology for sourcing inventory.
8. Cache Inc.
45.57 percent
By tapping into the teen market, Cache is moving its casual sportswear. “Our customer wants what the teens are wearing, but interpreted differently,” ceo Brian Woolf told WWD early this year. And its spring collection, including boleros, Lurex turtlenecks and crocheted halters, also capitalizes on teen trends. After largely sourcing domestically, Cache is now starting to source overseas, which can dramatically boost margins.
9. Coldwater Creek INC.
45.56 percent
Surging sales at this Sandpoint, Idaho retailer help fatten margins. Last year, there were fewer markdowns and “improved merchandise margins on sales in all channels,” according to a company report. This year, Coldwater Creek is pushing ahead again by resoundingly beating Wall Street earnings estimates in the second quarter; sales rose 41 percent from a year ago, as well. Web sales, becoming a good chunk of net overall revenues, were up 30 percent in the same quarter.
10. J. Crew GROUP INC.
41.75 percent
Building on key items like chinos, T-shirts and dresses, J. Crew is cruising to higher margins. Millard Drexler, J.Crew’s chairman and ceo, explained, “We look at the investment by style and product … The rule is, if the goods are good, you usually beat your plan.” High-volume specialists like J. Crew are leveraging lean inventories and faster turns to build stronger gross margins. “We are very religious about key franchise categories,” Drexler added.
Source: EdgarPro, compiled by Fairchild Publications’ Financial News Service