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Apparel Stocks Beat Market in February

Apparel retail stocks outperformed the Dow in February, with the average industry share rising 1.7%, compared to a negligible 0.3% increase for the overall market index.

Winning stocks were those that delivered better-than-expected fourth quarter sales or other good news.

Michael Kors (KORS) soared 42 percent to finish the month at $56.65 after catching the market off-guard with its better-than-expected third quarter financial performance. Revenue increased 6.3% to $1.4 billion, helped by better-than-expected holiday results and new accessories collections that resonated with consumers. Consistent with market trends, the company has shifted its merchandise mix toward smaller crossbody bags that carry lower price tags. Same-store sales fell by almost 1 percent which, though not necessarily impressive, beat the decline of 4.4% expected by Wall Street. Net income fell to $294.6 million, or $1.59 per share, from $303.7 million, or $1.48 per share in the year-ago quarter. Analysts were forecasting $1.59 per share. This year’s earnings included a $0.06 per share negative impact from currency fluctuations. The company is forecasting fourth quarter sales of around $1.14 billion, just shy of estimates. The stock is up 41.4% so far this year.

JCPenney (JCP) leaped 40.5% percent, to $10.20. The mid-tier department store reported fiscal fourth quarter sales and earnings that came in ahead of expectations. Sales rose 2.6% to almost $4 billion, surpassing Wall Street’s $3.9 billion forecast, thanks to strength in non-apparel categories such as home, accessories and beauty (Sephora). Same-store sales were up by an encouraging 4.1% in the quarter, on top of a similar rise in the year-earlier period. Gross margin expanded 30 basis points to 34.1% Although its net loss widened to $131 million from $35 million a year earlier, after adjustments for restructuring costs and debt extinguishment, adjusted earnings per share were $0.39, exceeding estimates of $0.22. The company said it is exploring the possibility of selling its Plano, Texas headquarters in a sale-leaseback arrangement that would help retire some of its more than $5 billion in long-term debt. The retailer also announced during the month that it is shoring up its private label merchandising operations, including a new millennial brand called Belle + Sky, and will debut a new center core layout in over a third of its stores this spring. One collection that the retailer will most likely discontinue, however, is a St. John’s Bay outerwear group enhanced with a red, camel, black and white check that Burberry felt was a low-quality copy of its own iconic trademarked pattern: The British heritage label filed a trademark infringement suit against JCPenney early in the month. JCPenney shares have risen by 53.2% year-to-date.

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Delta Apparel (DLA), maker of the Soffe, Junk Food and Salt Life casual sportswear brands, was one of the top performing apparel stocks in 2015, rising 38 percent for the year. It saw its stock price increase by more than 40 percent in February, to $16.88, after the company reported an adjusted first quarter sales increase of 2.5% to $90.2 million. Gross margin expanded by 450 basis points and net income was $681,000, or $0.09 per diluted share, compared with a net loss in the prior year quarter of $4.2 million, or $0.53 per diluted share.

Iconix Brand Group (ICON), which was the biggest loser apparel stock in 2015, gained 31 percent in February, to $8.70. The company confirmed it will restate historical financial statements by March 15 in response to a letter from the SEC about its accounting standards, and announced that John Haugh would assume the role of CEO effective April 1, replacing interim CEO Peter Cuneo. Cuneo will transition to executive chairman. Haugh has more than 30 years of experience at brands like Luxottica, Build-A-Bear Workshop and candy maker Mars, Inc.

The losing stocks were those that disappointed on the financial news or other front.

Ralph Lauren (RL), fell 19.3% to $90.76, after reporting lower-than-expected third-quarter revenue and full-year revenue guidance. Revenue dropped by 4 percent in the period to $1.9 billion, missing analyst estimates of $2 billion. Wholesale revenues dropped by 6 percent while retail’s decline was only 3 percent. On a currency-neutral basis, sales dipped by 1 percent. Although net income dropped by 39 percent to $131 million, earnings per share came in at $2.27, higher than the $2.15 expected by analysts. The company is expecting a full-year revenue decrease of 3 percent, compared to previous projections of flat sales for the year.

L Brands (LB) stock fell 11.8% to $84.79 in a month full of news at the Victoria’s Secret and Bath & Body Works parent. First, the retailer posted a surprise 2 percent decline in January same-store sales. Sales were reportedly affected by the timing of Victoria’s Secret’s semi-annual sale, which took place in December this year instead of in January. A four percent drop in comps at the lingerie store was partially offset by a two percent increase at Bath & Body Works. The stock received another blow when the company announced that longtime Victoria’s Secret CEO Sharen Turney was leaving the company suddenly with no successor in place to “prioritize her family and her personal life.” Turney joined the company in 2000 and assumed the CEO role in 2006. L Brands chairman and CEO Les Wexner will assume leadership of Victoria’s Secret. The stock then regained momentum when on Feb. 24 the company reported fourth-quarter sales and earnings results that surpassed Wall Street estimates. Sales rose 8 percent to $4.4 billion in the quarter, beating Wall Street forecasts of $4.39 billion, and net income increased by more than 12 percent to $636 million, or $2.15 per share, from $564 million, or $1.89 per share. Analysts were expecting $2.05 per share. For the full year, revenue increased by 6 percent to $12.15 billion and net income increased by 20 percent to $1.25 billion, or $4.22 per share, from $1.04 billion, or $3.50 per share.

Cititrends (CTRN) dropped by 10.2% to $36.20, after announcing that fourth quarter sales dipped by 2.8% to $176.1 million. Comps decreased by 5 percent in the quarter, with January the worst performing month. For the full year, sales increased by 1.9% to $683.8 million and comps were flat. The company announced a quarterly dividend of $0.06 per share payable on March 15.