Unique Branding, Customer Loyalty Set Some Retailers Apart

For the past couple months, an up tick in retail sales gave recession-wary investors hope that indeed there was light at the end of the tunnel. Unfortunately, unexpectedly weak retail data from March dimmed those hopes.

Perhaps some of the large retailers are licking their wounds. The day of the release, large retailers tumbled the hardest: Department store operator Macy's stock (NYSE: M) fell 7.3%, shares of Wal-Mart Stores (NYSE: WMT) the world's biggest retailer, gave up nearly 1% and good, old Procter & Gamble (NYSE: PG) declined 1.6%.

I, however, found a handful of healthy small retailers with unique branding and loyal customers capable of bucking any downtrend.

Fast forward to today. One company, Pacific Sunwear (NASDAQ: PSUN) soared 18% on Tuesday.  I don't know where you live, but having temperatures in the 90s here in Southern California and the Pacific Ocean a chilly 58 degrees, I'm already making my ritualistic visit to the local PacSun store for a wet suit. My gut tells me I'm not alone.

Much of the recent excitement surrounding PacSun is associated with its multi-year contract renewal with Alliance Data Systems Corporation (NYSE: ADS) a leader in providing loyalty and marketing solutions derived from transaction-rich data.

Headquartered in Anaheim, CA., PacSun is a leading lifestyle specialty retailer rooted in the youth culture and fashion vibe of Southern California, selling casual apparel with a limited selection of accessories and footwear designed to meet the needs of teens and young adults.

PacSun currently operates 932 PacSun stores in 50 states and Puerto Rico. A client of Alliance Data's since 2000, Pacific Sunwear of California, Inc. recorded fiscal 2008 sales of $1.25 billion.

"PacSun is a lifestyle brand that has built a loyal customer base with tremendous affinity for the brand," said Ivan Szeftel, president of Retail Services for Alliance Data. "We're excited to continue our partnership with PacSun to complement their brand, while providing credit marketing tools that drive customer loyalty."

Selling at a cheap $3.02 a share and summer right around the corner, I'd be buying more than a bikini if I were you.

Another company operating in its own little world is Lululemon Athletica Inc. (NASDAQ: LULU). Up nearly 9% on Tuesday, LULU announced the launch of its much anticipated e-commerce site where guests can now shop for yoga-inspired athletic appeal. As you can see, this isn't for every Tom, Dick or Mary.

Setting the bar in technical fabrics and functional designs, Lululemon works with yogis and athletes in local communities for continuous research and product feedback. The company was founded in Vancouver, British Columbia in 1998 and is extending into new communities across North America and abroad.

I'm not all that fond of yoga wear, but the company is definitely a worthy investment. Early this month, William Blair&Co. analysts upgraded their rating on Lululemon to "outperform," saying sales trends may have leveled off and that markdown levels are the lowest since the end of 2007.

Those low markdown levels suggest tighter inventory controls and better assessment of customer's needs. The analysts said they view Lululemon as a "compelling investment opportunity."

Next on my list is Charming Shoppes (NASDAQ: CHRS), another trend bucker with a 5% gain on Tuesday. A specialty retailer primarily for women operates retail stores and related e-commerce Web sites under The Lane Bryant, Lane Bryant Outlet, Fashion Bug, Catherines Plus Sizes, Petite Sophisticate, and Petite Sophisticate Outlet names.

Although 2nd quarter 2009 results aren't due out until May 27, the company reported that it generated approximately $26 million in cash during the fourth quarter through tightly managed inventories and decreases in expenditures, as well as from net proceeds from the sale of credit card receivables.

The company, through its subsidiary, Crosstown Traders, Inc., also operates as a direct marketer of women's apparel, footwear, accessories, and specialty gifts through catalogs and related Web sites. As of January 31, 2009, it operated 2,301 stores. The company was founded in 1940 and is headquartered in Bensalem, Pennsylvania.

Like PacSun, its stock trades for a cheap $2.63

Are you beginning to see a trend as I talk about these retailers? That's right. All of them are small, somewhat thriving companies that have found their niches in the industry.

Here's another: The Dress Barn (NASDAQ: DBRN) rose 1.28% in light of a drop in the S&P retail index last week. However, after releasing some bullish comments last week about positive signs in the business, analysts raised its third-quarter earnings growth projection at 17%.

As a result, shares of DBRN have been rallying, building on an already healthy up trend that has been in play for the last month.  Based upon the current-year estimate, this stock is trading at a premium to the overall market, carrying a P/E multiple of 17X.

Stick to those companies that cater to specific segments of the population. They'll ultimately get the most attention and customer loyalty.