ALOY, DLIA, ERTS, AEOS on Forbes. We are shorting Generation-Y's favorites :)
Trend Catchers
Megan E. Mulligan, Forbes Magazine, 08.06.01
Everybody wants a piece of Generation Y--a fickle crowd with growing disposable income and a lot more say in what the household buys. Herey's how to play teen stocks.
Teenagers rule: 32 million of them each spends an average of $116 every week. And even with the economic slowdown, a relatively low unemployment rate is still creating plenty of entry-level job opportunities for kids.
High school students are also increasingly making important household purchasing decisions not limited to clothes, movies and videogames. Teenagers are taking on added responsibilities, such as doing their family's grocery shopping or acting as the family's chief technology officer for parents flummoxed by computers. And more teens are getting credit access through vehicles like the Visa Buxx card.
Companies targeting this demographic can profit substantially--and get a jump on long-term relationships with tomorrow's adult consumers--if they play it smart.
The big drawback with chasing the youth market: What's cool today may be dorky tomorrow. Betting big on the wrong spokesperson or fashion can set off a lasting downward spiral. Look at how Gap has suffered as the young set abandoned it. The clothing retailer's stock has been halved from its early 2000 high.
One example of how to do things right: Abercrombie & Fitch, which ditched its traditional upscale sport and outdoorwear business to tilt toward teenagers. The strategy has helped revenues to more than triple since 1997. Abercrombie is rolling out a lower-price concept store, Hollister, selling California-style surf and skate duds. The company believes there may be room for as many as 600 Hollister outlets nationwide. Its per-share profits are expected to rise 19% in 2001; Abercrombie & Fitch stock sells for 22 times estimated earnings.
Designer Tommy Hilfiger experienced a huge boost in revenues when he switched from a preppy look to a hip hop sensibility. Brand overextension has since hurt the company, but with teen idols like N'Sync and Backstreet Boys dressing up in Tommy, Hilfiger still has pull with youngsters. This could be a chance to buy Hilfiger on the cheap: The stock sells for nine times 12-month trailing earnings.
A potential winner: the World Wrestling Federation, coming off its recent humiliation with the XFL, its ill-fated football league. After acquiring its top rival, World Championship Wrestling, the federation can build on its popularity with male teens and on its extensive licensing opportunities.
The Young and the Restless
This eclectic roster of companies is heavily dependent on teen customers. While the youth market is capricious, these companies seem to know how to please it.
Company Recent
price YTD price
change Latest
12-mo EPS 2001 P/E
estimated Market value
($mil)
Abercrombie & Fitch $42.09 110% $1.60 23 $4,167
Alloy Online 14.19 85 -1.69 284 298
American Eagle Outfitters 39.73 41 1.34 23 2,813
Bebe Stores 34.54 62 1.02 32 863
Delia's 7.00 396 -2.91 NM 247
Electronic Arts 58.95 38 -0.08 95 8,100
Tommy Hilfiger 13.18 36 1.43 8 1,220
Limited 13.83 -1 0.89 19 7,175
World Wrestling Federation 14.30 -11 0.66 18 1,042
Prices as of July 13. NM: Not meaningful. Sources: Bloomberg Financial Markets; FT Interactive Data, Market Guide and Thomson Financial/IBES via FactSet Research Systems.
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