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Retail Stocks Underperform Market in September

Retail apparel stocks got pummeled in September, dropping by more than 4 percent, a decline almost three times higher than that of the overall market. The Dow Jones Industrial Average fell by almost 1.5%, finishing the month at 17,690.

In the first nine months of 2015, the average price of an apparel share fell by 7.4%, slightly less than the Dow’s 8.6% year-to-date decline.

Here’s what’s been happening in the past month:

Ascena Retail Group (ASNA) rose 15.2% to $13.91 after the operator of Ann Taylor, Loft, Lane Bryant, Justice and maurice’s reported fourth quarter financial results that exceeded Wall Street expectations. The net loss of $1.98 per diluted share was a significant swing from the $0.10 per share profit earned in the fourth quarter of 2014. Adjusted for the $306 million impairment of goodwill and an intangible asset and a $50 million accrual for costs related to a pricing lawsuit, however, earnings per share were $0.06 per share, beating analyst expectations by a penny. Revenue for the quarter rose 1.1% to $1.17 billion, exceeding Wall Street estimates of $1.16 billion. New store growth at maurices and positive combined comps at Lane Bryant, maurices and Catherines was offset by a drop in combined comps at Justice and Dressbarn.

Nike (NKE) jumped 10 percent to $122.97 as the global athletic footwear and apparel  company hit it out of the park with the quarter earnings report it released on September 24. Total revenue increased five percent to $8.4 billion, up 14 percent on a currency-neutral basis. Revenues for the Nike Brand were $7.9 billion, or 94 percent of total revenue, up 15 percent on a currency-neutral basis driven by growth in every geographic region and nearly every key category. Diluted earnings per share increased 23 percent due to broad-based revenue growth, gross margin expansion, selling and administrative expense leverage, a lower effective tax rate and a lower average share count.

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Francesca’s Closet (FRAN), owner of Francesca’s Closet boutiques, gained 8.8% to $12.23 after the retailer released a strong second quarter earnings report. Revenue was $106 million, topping analyst expectations of $105 million. Net income of $9.3 million, or $0.22 per share, beat estimates by a penny. The company now expects full-year earnings to be $0.83 to $0.88 per share, with revenue ranging from $416 million to $424 million.

L Brands (LB) stock pushed up 7.4% to $90.13 after the owner of Victoria’s Secret posted August sales that topped analyst estimates, helped primarily by strong sales at its Victoria’s Secret and PINK brands. Total sales rose 8 percent to $826 million, and comparable-store sales increased by 6 percent, blowing past analyst estimates of a 2.3% gain. Limited Brands has been working to buoy sales growth in its Victoria’s Secret and Bath & Body Works brands by bringing new merchandise into stores faster and improving customer service. The company said back-to-school demand for its Pink brand products has been strong. Year-to-date, the stock is up 4 percent.

Vince Holdings (VNCE) plummeted 62.6% to $3.43, making it the biggest apparel retail stock loser for the second month in a row, after the contemporary clothing company released disappointing second-quarter results and reduced its full-year guidance. Revenue fell 10.4% year to $80 million. A 44.7% increase to $21.7 million in direct-to-consumer revenue and 13.4% rise in comparable-store sales growth failed to offset the 21.6% decline in wholesale segment sales to $58.3 million. The company took a $14.4 million inventory writedown in the period and incurred $2.9 million in management transition costs (earlier in the quarter the CEO, CFO and chief creative officer all resigned) that translated to a net loss of $5.0 million, or $0.14 per diluted share. Excluding items, adjusted net income was $5.2 million, or $0.14 per diluted share, still falling short of analysts’ expectations of $0.23 per share on revenue of $86.3 million. The company now expects full fiscal year sales of $285 million to $295 million, well below prior estimates of $340 million, and earnings per share of between $0.31 and $0.37, less than half the $0.84 per share Wall Street was looking for.

Cherokee (CHKE) slid 39.5% to $15.52, after the brand management company reported second-quarter revenue of $8.5 million, missing estimates, and $0.22 per share earnings, $0.02 less than analysts expected. Cherokee shares dropped by almost 20 percent in the first nine months of 2015.

Zumiez (ZUMZ) sank 32.9% to $15.63, as the surf-inspired specialty retailer posted second-quarter earnings that were in line with estimates. Sales fell short, however, and guidance for the third quarter disappointed. The clothing retailer posted revenue of $179.8 million in the period, below the $180.1 million expected. Net income was $3.2 million, or $0.12 per share. For the current quarter ending in November, Zumiez said it expects revenue in the range of $202 million to $206 million, below the $223.3 million investors had projected. Zumiez shares have declined by almost 60 percent since the beginning of the year.

Finish Line (FINL) fell 26.8% to $19.30, after reporting second quarter earnings that missed Wall Street expectations. Total revenue at the athletic footwear retailer rose by 3.5%, to $483 million, hampered by a sluggish 1.5% rise in same-store. Bricks-and-mortar comps in the quarter were slightly down, while ecommerce was up by double digits. Analysts had hoped for revenue of over $490 million. Net income fell from $26.2 million to $25.9 million, or $0.57 per share (an increase from $0.54 per share in the prior year due to a lower share count) in line with Wall Street expectations.

Men’s Wearhouse (MW) dipped 24.4% to $42.52 after second-quarter financial results exceeded expectations on the bottom line but fell short on at the top. Net sales advanced 14.6% to $920.1 million. Missing consensus estimates of $947 million. Comps increased 3.1% at Men’s Wearhouse, 6.7% at K&G and 0.7% at Moores, while decreasing 9.4% at Jos. A. Bank. The retail segment’s total revenue increased 16.6% to $858.9 million, while corporate apparel revenues declined 8.2% to $61.2 million. Net income was $47.8 million, or $1.07 per share after adjusting for costs related to mergers and acquisitions and non-recurring costs, beating Wall Street estimates by $0.02. Men’s Wearhouse shares have dropped by 4 percent since the beginning of the year.

Lululemon Athletica (LULU) lost 20.9% to $50.65. Second-quarter net income was $47.7 million, or $0.34 cents per share, in line with estimates. Revenue of $453 million, however, fell slightly short of estimates. Same-store sales in the quarter increased by 6 percent year over year on a constant dollar basis, while online sales rose 35 percent on the same basis. Direct to consumer sales now make up 18.2% of Lululemon’s total sales, up from 16.2% in the same period last year. Gross margin narrowed to 46.8% from 50.5% a year ago, and sales forecasts for the current quarter and the full year were lower than analyst estimates. The company said it would begin selling its pants by fit (or “sensation”) instead of silhouette, calling the new categories “hugged, naked, relaxed, tight, and held in.” The yoga retailer has also started to raise prices on some of its styles. So far for the year, Lululemon shares are down 9 percent.