It's a really bad time to be in low-end apparel. Levis Strauss, which is privately owned but has publicly-traded bonds and therefore reports its earnings, saw its second quarter operating income decline from $118 million to $52 million, driven by an 8% decline in revenue and increased selling, general and administrative costs.

President and CEO John Anderson commented that "The retail environment in the United States remained challenging. . . Increasingly difficult economic conditions in many markets worldwide are impacting consumer spending, but our brands remain strong."

The Wall Street Journal reports (subscription required) that the company's bonds that come due in 2015 have fallen to 95.75 cents on the dollar after 5.5 cent drop in the past week -- the debt carries junk ratings and, given the absolute garbage that's rated investment grade these days, that's saying something.

With all the awful reports coming out on fashion and apparel companies lately -- and the beatings the stocks have taken -- you have to wonder whether they're becoming a good contrarian play. People will buy new clothes eventually, won't they?

Consumer prices rose 0.2% in April 2008, the U.S. Labor Department announced Wednesday, a statistic below the consensus estimate as oil prices moderated during month, offsetting rising food prices.

Economists surveyed by Bloomberg News had expected April 2008 consumer prices to increase 0.3%. Consumer prices increased 0.3% in March 2008.

Also, the core rate, which excludes the frequently-volatile food and energy component, rose just 0.2% in April 2008, inline with the Bloomberg News survey 0.2% consensus estimate.

On a year-over-year basis, consumer prices have risen 3.9% and the core rate has risen 2.3%. The core rate remains slightly above U.S. Federal Reserve's 'comfort zone' for inflation. The Fed uses the core CPI rate as one of its primary gauges of consumer-based inflation.

April 2008 CPI: 'Surprisingly tame'

Economist David H. Wang said the April 2008 CPI report was a bit of a surprise -- one that may help the U.S. economy. "The report was surprisingly tame. We do see rising food costs, but the energy component was not as bad as expected," Wang said. "Also, core year-over-year inflation is not too bad, and the Fed [U.S. Federal Reserve] will look favorably upon this, if it remains moderate."

Who can forget the advertising campaign a number of years back that threw social watch dogs into fits over Abercrombie & Fitch (NYSE: ANF). That particular advertising foray employed the lithe bodies of teen and preteen boys and girls in a way which, while certainly drawing attention, underscored today's excessive use of underage sexuality in advertising. Parent groups and child protective agencies were enraged, as well they might be. However, a recent ad campaign launched by Beyonce and her House of Dereon, clothes for girls, makes Abercrombie's misadventures look about as harmless as a day at the zoo.

A blog post presented by our sister blog Styledash, reveals the shocking truth about the clothing ad campaign, which is the brainchild of Beyonce and her mother, Tina Knowles. Blogger Kristen Seymour espouses the danger in this type of advertising by describing the presentation in the terms of "Go on, baby, and earn your lunch money the old-fashioned way."

The gallery provided by Styledash is self-explanatory and might serve to turn the stomachs of little girl's parents everywhere. Certainly, Beyonce and her advertising agency have accomplished what they wanted to. We can also believe that Abercrombie & Fitch shall benefit slightly with a parallel focus to its own questionable advertising strategy. However, we need only to remember the enigmatic fate of JonBenet Ramsey to realize down which road this type of advertising strategy may lead.

(Thanks to Styledash for the tip, Additional thanks to Gawker)

Amid all the dire financial news of late, it's easy to believe that the retail market is on its way to becoming a wasteland, populated by vacant, run-down malls and gargantuan box stores. Watching the declining fortunes of malls and the stores that populate them, many analysts seem to be predicting a freaky, post-apocalyptic future in which all clothes will be purchased online or from Wal-Mart.

Before we go overboard, though, it might be wise to consider the current fortunes of H&M. Listed on the Swedish Exchange as HMB, H&M's shares have been consistently rising, and its first-quarter profit is up by 28%. In fact, even as many clothing retailers are closing stores, H&M is planning to open 190 outlets in the United States and Europe. It already is running profitable stores in China and the Middle East, and is planning on opening stores in Russia starting in 2009.

H&M's secret is surprisingly obvious: it sells well-made, nicely-tailored clothing at very reasonable prices. Its stores are clean and well-run, its employees are knowledgeable, and its styles are up-to-date. In fact, for considerably less than the cost of a baggy, ill-fitting suit from JC Penney, I can buy a matched-separates pair of pants and jacket from H&M. Its clothes fit well, wear well, and don't carry the stigma that is attached to most department stores.

Good prices, good service, good product ... it isn't hard to see why H&M is gearing up to be the last one standing!

With recession fears, housing market worries and credit concerns, retailers have been facing tough times over the past few months. But on the heels of these worries, shares of world's largest athletic shoemaker, Nike Inc. (NYSE: NKE), have been climbing today the most in almost nine months after announcing last night stronger-than-expected third-quarter profit.

The company said its quarterly profit surged 32% to $463.8 million, compared with $350.8 million a year earlier boosted by strong gains in Europe and Asia. The company posted earnings 92 cents a share, exceeding analysts' forecast for a quarterly profit of 80 cents a share.

The company's quarterly revenue grew by a respectable 16% to $4.54 billion. For this period, the athletic shoemaker counted strong sales for products lifted by the weak U.S. dollar. Analysts, on average, expected Nike's sales to be $4.36 billion, according to FactSet.

At one time, Wal-Mart (NYSE: WMT) wanted to be a trendy place to buy clothes. It thought that would fatten margins and bring in higher end customers. It never worked. The middle class did not appear to warm to the idea of buying fashion at a warehouse.

The largest retailer has seen the error of its ways and a number of people in the apparel unit will pay for the company's mistakes. According to The New York Times, "in a major revamping of its sluggish clothing business, Wal-Mart Stores will shut two divisions at its headquarters in Arkansas, eliminate dozens of positions and move dozens more to New York City."

Selling clothes is a $30 billion business for Wal-Mart, so it will not do anything to exit that part of its operation. But, it clearly has no interest in trying to be the "trend setter" by locating the latest fashions and hoping it can present them with appeal down the aisle from the guns and ammo section.

Now, it will just sell clothes, the kinds of shirts, pants, and dresses that most people who don't care about designer labels wear.

Douglas A. McIntyre is an editor at 247wallst.com.

Several friends have asked me for my opinion of American Apparel (AMEX: APP), a clothier that recently became public through its acquisition by Endeavor Acquisition.

First a little bit of background: American Apparel was founded in 1997 by Dov Charney, and is known for its simple, high-quality clothing, and its unique practice of not plastering its logo on everything it sells. Browse through their merchandise on the company's website. The company also avoids outsourcing, manufacturing its clothing in Los Angeles where it is headquartered.

In 2006, the company had revenue of just over $264 million, an increase of 37.7%. The increase was driven by the opening of 41 new stores, but the company still reported a loss just about $1.6 million as SG&A expenses climbed.

Sales are growing quickly and the company turned a profit in its most recent quarter. American Apparel certainly has the potential to turn into a very hot retail growth stock -- it's already up big over the past few months. But there are a couple things to worry about. First, saying that founder and CEO Dov Charney is uninhibited is like saying that Alan Greenspan can ramble a bit. In 2005, the New York Times did a story on Charney's -- er ... unique management style. Here's a quick sampling:

Investors don't hear much about Tandy Brands Accessories Inc. (NASDAQ: TBAC). Tandy designs and markets various types of clothing and fashion accessories under a variety of labels. Problem is Tandy is not marketing what vendors wish to purchase. Net sales for 1Q 2008 were down $18 million to $39.5 million, caused primarily on a lack of orders from Tandy's #1 customer. Any company that relies on one customer for the bulk of its business eventually winds up in trouble.

CEO J.S.B. Jenkins has spent the last 22 months trying to hollow out costs and shift away from low profit margin product lines. Tandy is transferring the remainder of its manufacturing capacity overseas to lower costs, and has lined up three new licensing agreements to begin in 2008. The company recently declared a dividend of $0.04 per share, its 18th straight quarterly dividend. But is a dividend payout really the best use of funds given that Tandy recently breached (not defaulted on) the terms of its $75 million unsecured credit line?

The National Retail Federation recently announced a dismal forecast for the upcoming winter holiday shopping season: it will be the slowest since 2002, with total sales of $474.5 billion. Try telling that to high-end apparel designer and retailer Guess? Inc. (NYSE: GES), which reported a month ago record 2Q FY2008 revenues of $388 million, up 48%. Guess? is looking towards a dynamite holiday clothing sale season, with the biggest increases coming from international markets. Just over half of Guess?'s revenue presently comes from North American markets, which posted sales increases of 16% for the previous quarter, the lowest sales increase of any geographic region. Total sales in Europe rose 121%, that's correct, a triple digit increase, to $108 million. Just in the previous year, sales in Guess? Asian market, especially South Korea, have increased 75% to just over $57 million. Worldwide licensing revenues are up 51% to $21.5 million.

Unlike many retailers in the U.S., Guess? Inc. finds itself in the enviable position of not being primarily dependent on the U.S. holiday shopping season to post big gains. Despite tightening of much consumer shopping in the U.S., driven by housing concerns and a credit crunch, Guess? Inc. has posted earnings growth for 16 quarters in a row. Clearly the retailer has the right mix of higher-end apparel and edgy advertising that appeals to younger, affluent consumers whose buying habits have yet to show signs of slowing down.

Guess? Inc. recently raised its FY2008 guidance to reflect a revenue forecast of $1.56-$1.6 billion, with diluted EPS of $1.79-$1.84. Guess? Inc. also rasied its dividend to $0.08 per share. The stock will take investors for a ride. It began the year trading at $64.70, rose to a high of $85.19 on 13 March before splitting 2-for-1, and has risen more than 23% since the split, to close Wednesday at $50.75, up another $0.25 with no reason to expect a downturn anytime soon.

Kenneth Cole Productions (NYSE: KCP) recently announced that it has acquired the Le Tigre brand for $13 million, plus an earn-out that could escalate the value of the deal to as much as $25 million.

Kenneth Cole will gain all intellectual property related to the company. CEO Kenneth Cole said that "We are pleased to add such a strong and internationally respected brand to our portfolio. We believe there is significant upside for the Company, specifically through various licensing opportunities as well as through the introduction of men's, women's and children's footwear."

I agree with him, and the price certainly looks right. Le Tigre was founded in 1977, and was big for awhile, before going out of production in the 1990s. Re-launched in 2003, Le Tigre has made a quick impact. Its products are sold in stores like Nordstrom and Lord & Taylor and, given the brand's status as a household name, there are likely to be numerous licensing opportunities.

I would say that a lot of lesser brands are receiving much higher valuations, and expect that, under the umbrella of a larger company like Kenneth Cole, Le Tigre will shine.

Byron Pollitt, CFO of Gap (NYSE: GPS) is leaving the company to take the same job with Visa. While there don't appear to be any indications that he was pushed out for wrongdoing, this news is hardly bullish for investors. After all, if he left to pursue an opportunity with Visa, isn't the implication that Gap isn't such a great opportunity right now?

Consider: The job isn't a promotion -- it's the same title. And both companies are located in San Francisco, so we can't even use the "moving closer to home" explanation. No, Mr. Pollitt left because he decided he would rather work for Visa.

With Visa recently having completed a restructuring to prepare for an upcoming IPO, investors may want to follow Pollitt over to that company. If it's a better opportunity for him, it's probably better for investors too.

Crocs Inc. (NASDAQ: CROX) is higher this morning after the company announced a new clothing line for men and children, as noted in more detail by Douglas McIntyre and Georges Yared earlier today. The clothing is expected to find its way to stores in October, which gives us an opportunity between now and then to place a trade that takes advantage of this news.

Crocs has hit a new all-time high today and has been steadily higher over the past year. This morning, CROX opened at $61.49. So far today the stock has hit a low of $59.55 and a high of $61.99. As of 11:10, CROX is trading at $59.91, up $0.92 (1.6%). The chart for CROX looks bullish but deteriorating slightly.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 2 months as long as CROX is above $40 at October expiration. Crocs would have to fall by more than 33% before we would start to lose money.

This trade could be risky if the new clothing venture falls flat, but with this trade expiring in October, the new product line will be just coming out when this trade closes. The apparel line won't be known as a success or flop until a few weeks after launch, so October expiration could be the sweet spot for CROX.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in CROX.

Ann Taylor Stores (NYSE: ANN) implied volatility Increases to 50 into EPS. ANN is expected to report EPS on 8/24. BUCK says "we continue to project a recovery in the back half of the year." ANN September option implied volatility of 50 is above its 26-week average of 33 according to Track Data, indicating larger risk.

Abercrombie & Fitch (NYSE: ANF) volatility of 49 above 26-week average of 33 into EPS. ANF is recently up $2.18 to $74.92. ANF is expected to report EPS of .87 cents on August 22nd according to Thomson First Call. ANF has a market cap of $6.6 billion. Freidman Billings say's "Upgrading to Outperform; High-Quality name to weather Turbulent Times." ANF September option implied volatility of 49 is above its 26-week average of 33 according to Track Data, suggesting larger risk.

Volatility Index S&P 500 Options down .84 to 29.99.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

VF Corporation (NYSE: VFC) has made 2 big acquisitions. It spend $775 million to acquire 7 For All Mankind, a privately-held leader in the booming premium denim market, and another $110 million to acquire Lucy, a make of women's activewear.

The moves are consistent with the company's strategy of acquiring strong brands with high margins while divesting some of its lower margin labels. The company holds numerous household names in apparel, including Wrangler, Lee, North Face, and Nautica.

For investors, the 7 acquisition is a sign of industry faith in continued strength in the premium denim category, where $300 jeans are nothing out of the ordinary.

VF is paying about 2.5 times sales for 7, while fellow denim-leader True Religion (NASDAQ: TRLG) trades at about 3.35 times sales with a market cap of around $450 million. That company recently announced that it was concluding a review of strategic alternatives and would continue as a stand-alone company. I suspect that there was little interest on the part of prospective buyers.

The other premium denim play, which owns much, much less valuable brands, is Blue Holdings (NASDAQ: BLUE), the parent company of Antik Denim, Taverniti So Jeans, Yanuk and Faith Connexion. The stock trades at less than 1 times sales, but has a substantial debt load and it isn't profitable.

Investors should probably watch the premium denim industry from the sidelines for now.

Lyric Jeans, an apparel company inspired by music and lyrics (the real things, not the Hugh Grant romantic comedy) has inked a licensing agreement with FremantleMedia, co-producer and licensor of American Idol. According to the press release, the lyric-inspired clothing line will initially target juniors and girls and then expand into other departments, including children's.

The president of Lyric, available for trading only on an over-the-counter basis, noted that "American Idol is the most powerful and iconic music brand in popular culture today and the perfect tie-in for our creative concept ... we couldn't have dreamt of a better partner."

Current offerings from the company are available online, in specialty boutiques, and at Saks Fifth Avenue (NYSE: SKS). Some threads include T-shirts inspired by artists such as Janis Joplin, The Beatles, and Marvin Gaye. I'm not sure what confuses me more ... how Taylor Hicks fits into this esteemed lineup, or why these T-shirts cost $90. That Lennon/McCartney catalog ain't cheap.

Is it a sign that Idol, a ratings juggernaut for News Corp's (NYSE: NWS) Fox network for the past six seasons, has hit the peak of its success? Jumped the shark, as it were? Just ask the New Kids on the Block or the newly reunited Spice Girls -- once the merchandising reaches extreme levels, the end could be around the corner. Then again, ratings were at a record high last season despite some truly mediocre singers in the mix -- Ryan Seacrest may just have a job forever.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.