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Superior Uniform, American Eagle Among Top Apparel Stocks in Third Quarter

The approximately 100 U.S. industry stocks tracked by Sourcing Journal saw their average prices fall by a collective 1.4% in the July through September period, underperforming the Dow Jones Industrial Average, which advanced by over 1 percent.

Superior Uniform Group (SGC), American Eagle Outfitters (AEO), Cherokee Brands (CHKE), and Family Dollar (FDO) were among the best performing retail apparel stocks in the third calendar quarter of 2014, while Sears Holdings (SHLD) and Delta Apparel (DLA) were two of the worst.

Superior Uniform Group (SGC) gained 33.6%, to $21.65, bringing its year-to-date gain to 38.6%. The manufacturer of uniforms, career apparel and accessories announced in July that second quarter fiscal sales and earnings, which included results of acquired uniform supplier HPI and reflected new programs at transportation and retail customers, far exceeded expectations. Sales were $53.2 million, compared with $30.9 million in the prior year’s second quarter. Net earnings were $3.9 million, or $0.57 per diluted share, more than double the $1.4 million, or $0.23 per share, in the second quarter of 2013. For the first half, sales grew 52 percent to $94.3 million, and earnings increased by 88 percent $5.1 million, or $0.75 per diluted share.

American Eagle Outfitters (AEO) jumped 29.4% to $14.52 in the third quarter, though remained flat on a year-to-date basis, after the retailer’s lower second-quarter sales and earnings beat estimates. Net sales slipped 2.3% year-over-year to $710 million, driving earnings down 70 percent to $0.03 per share. In mid-September the teen apparel retailer’s shares were upgraded to “overweight” from “equal weight” by Stephens, and its price target was raised from $13 to $16. Jay L. Schottenstein, the company’s executive chairman and interim CEO, purchased nearly 150,000 shares in the company on September 22, after purchasing approximately 500,000 shares earlier this year.

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Brand licensing company Cherokee Global Brands (CHKE) saw its stock increase by almost 20 percent, to $18.21, up almost 33 percent for the year so far, after reporting second quarter fiscal results that exceeded expectations. Revenues rose 17 percent to $8.8 million, buoying net income 16 percent to $2.3 million, or $0.27 per diluted share. Year-to-date, sales were up 20 percent to $18.7 million, with net income up an impressive 64 percent to $5.8 million, or $0.69 per share. It licenses its brands, which include Cherokee, Tony Hawk, Sideout, Liz Lange and Carole Little, to retailers like Kohl’s, Target, Tesco, TJX, RT-Mart, Eroski and many others, and has benefitted from the demand for U.S. brands in global markets. The company paid a $0.05 per share dividend in mid-September.

Family Dollar (FDO) jumped 16.8% to $77.24, an almost 19 percent year-to-date rise, after receiving takeover proposals from Dollar Tree and Dollar General. The Dollar Tree tender, at $74.50 per share, would be worth $8.5 billion, and has a greater likelihood of being approved by regulators. The Dollar General Deal, at $80 per share, puts the value of Family Dollar at $9 billion, but might meet with regulatory challenges. The company has yet to convene a special meeting of shareholders to approve or reject the offers, so at this point anything can happen.

Perry Ellis International (PERY) advanced 16.7% to $20.35, up 27.7% on a year-to-date basis, after beating second quarter earnings forecasts. The Miami-based branded apparel company posted revenue of $203.5 million and a loss of $1.6 million, or $0.11 per share. The average analyst estimate was for a loss of $0.13 per share.

Sears Holdings (SHLD) was the biggest loser in the quarter, plummeted 37 percent to $35.78, an almost 46 percent drop for the year so far, after it was announced that the company was borrowing $400 million from CEO Edward Lampert’s hedge fund ESL Investments, and that the loan would be secured by 25 percent of the retailer’s properties.  The loans pay an annual interest rate of 5 percent, and Sears will pay an upfront fee of 1.75% of the amount borrowed. The arrangement underscores the unusual relationship between the retailer and hedge fund, and raised doubts about the seriousness of the Sears turnaround effort.

Delta Apparel (DLA) dropped 36.5% in the quarter, to $9.09, a 45 percent drop for the year so far. The company, whose brands include Soffee and Junk Food, missed sales and earnings estimates in the third quarter, causing Ascendiant Capital Markets to downgrade its rating on the stock from “buy” to “hold.” Net sales for its fiscal third quarter declined 8 percent to $123.5 million, and net income dropped 40 percent to $2.2 million, or $0.27 per diluted share. For the first nine months of fiscal 2014, net sales were $338.0 million, down 6 percent from the prior year period. The Company had a net loss of $195 thousand for the first nine months of 2014, or $0.02 per diluted share, compared with net income of $5.6 million, or $0.67 per diluted share, in the prior year period.

Destination Maternity (DEST) fell 32 percent to $15.44, a 50 percent year-to-date decline. In late July the company reported a fiscal third quarter sales decline of 5.5% to $134 million due primarily to a decrease in comparable store sales of 5.3% and the closing of underperforming stores. Net income fell 36 percent to $5.5 million, or $0.40 per share, well below its guidance range of $0.53 to $0.62. For the first nine months of its fiscal year, sales dropped 4 percent to $395 million, and earnings plunged roughly 30 percent to $13 million, or $0.96 per share. The company attributed some of the shortfall to the fact that many of the currently popular non-maternity apparel styles like maxi and baby-doll dresses, stretch active bottoms with elastic waists, and peasant-style tops can also be worn by pregnant women. Destination Maternity plans to move its headquarters from Philadelphia to Moorestown, N.J., and has broken ground on a new, state-of-the-art distribution facility in Florence, N.J. Within two weeks of announcing its third quarter earnings, the company said that CEO Ed Krell is stepping down to be succeeded by specialty retail veteran Anthony Romano.

Kate Spade (KATE) plunged 31.2% to $26.23, a more than 17 percent decline for the first nine months of the year. Although the company reported a narrower net loss of $4 million than its $43.1 million loss in the second quarter of 2013, there is concern that the flagship brand’s growth is slowing, and that the new Saturday brand has taken longer than expected to take hold. Total sales in the second fiscal quarter rose 48 percent to $266.

Ascena Retail Group (ASNA) stock dropped by 22 percent in the quarter, to $13.30, bringing its year-to-date decline to 36.8% after the specialty apparel retailer missed fourth-quarter earnings expectations and said it sees “no evidence” of a market improvement. Fourth-quarter sales fell 1.3% to $1.18 billion. Net income plunged by 58 percent to $15.9 million, or $0.10 a share,  compared to Wall Street’s expectation for adjusted earnings of $0.18 a share on sales of $1.2 billion. Same-store sales fell 2 percent, but varied by division. Same-store sales fell 10 percent at its Justice stores and 7 percent for its Lane Bryant chain. Comps at Maurices and Dressbarn were nearly flat while Catherines grew 7 percent.

Michael Kors Holdings Ltd (KORS), saw stock dip 20 percent to $71.39, representing a loss of 11.4% so far in 2014. Although sales in the first quarter (ending July 31) grew by 43 percent to $919 million and earnings rose 49 percent to $0.91 per share, both topping estimates, its operating margin fell amid discounting, and the company gave weak earnings, revenue and margin guidance for the current quarter. In early September, it was announced that major investor Sportswear Holdings, run by Lawrence Stroll and Silas Chou, would be selling all of its remaining stake in the company–11.6 million shares, representing almost 6 percent of the company’s outstanding shares–for about $900 million. Messr Stroll and Chou would also be resigning from the company’s board, leaving a total of seven directors, five of which are independent. Sportswear Holdings was a founder of the company. It sold about 20 percent of its stake in the IPO, and another 25 percent in recent months. Sportswear Holdings continues to own the brand’s China business, Michael Kors Far East Holdings Ltd.

More leaders and laggards are shown in the chart below.