Hottest Profit Ratio Growth

Apparel retailers went through a long stretch of depressed sales, which no doubt helped hone inventory management strategies so as to position them to reap the rewards when sales picked up last year. Half of the retailers with the hottest profit ratios are apparel specialty store operators.

Category leader REX Stores runs small consumer electronics and appliance stores in communities ranging in size from 20,000 to 300,000 in population. REX Stores is not following a pure retail strategy and helped its profit ratio by selling off stores to invest in ethanol production and other alternative energy efforts. Last year, for example, the company completed a $74.5 million cash deal involving the sale of 86 stores and lease-back provisions for 40 of the locations.

As a merchandise category, apparel sales increased about 3 percent last year, according to research firm NPD Group. The hottest-profit-ratio group of apparel retailers, however, sported sales jumps ranging from 9.3 percent for American Eagle Outfitters to 23.1 percent for Urban Outfitters.

American Eagle and Abercrombie & Fitch have been going head-to-head for years and both prospered last year while expanding multiple formats. AEO boosted its 20-unit Martin + Osa with an e-commerce site. aerie, the intimate apparel brand that began opening freestanding stores in 2006, is expected to have 100 units in operation by the end of this year. Also in the works is the launch of a brand extension aimed at 2- to10-year-olds called 77kids by American Eagle, starting with a website this year and bricks-and-mortar locations next year. A&F counters with its namesake stores, plus ’tween-and-teen favorite Hollister, the urban sophisticate Ruehl, kids-oriented abercrombie and the newly-launched “underwear not lingerie” brand Gilly Hicks, with five stores in operation.

The Buckle, where denim accounts for nearly half the volume, has extended its hot streak into 2008 with double-digit same-store sales increases, while bebe Stores hews its own trail while selling contemporary women’s apparel and accessories in more than 300 locations. Urban Outfitters, which also operates Anthropologie and Free People units, this year acquired a chain of nurseries and re-launched it as a garden center concept called Terrain.