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Apparel Industry Stocks Mixed in June

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After taking a bumpy ride for most of the month, the Dow Jones Industrial Average finished the month of June up 3.4%, bringing its year-to-date gain to 5.4%.
Industry stocks were mixed, however. Although the retail index edged up .7%, the wholesale index slid by 9.7%. For the year, retail stocks have advanced a whopping 6.9%, while wholesale has edged ahead by only 3.1%.

 Stock Averages

Month

YTD

Dow

3.4%

5.4%

Retail

0.7%

6.9%

Whsale/Mfg

-9.7%

3.1%

Retail Gainers and Losers
The fortunes of the 5 biggest retail gainers and losers for the month were determined largely by how well they fared against Wall Street expectations.

 

Retail

 

Symbol

Month/YTD

% Chg  

5/25/12

Price  

YTD

% Chg

  The BonTon BONT

94.3

7.81

131.8

  Steinmart SMRT

14.9

8.00

16.7

  Costco COST

12.5

95.00

14.0

  Zumiez ZUMZ

11.1

39.60

42.6

  Destination Maternity DEST

10.8

21.60

29.2

  Mens Wearhouse MW

-22.8

28.10

-13.2

  Lululemon LULU

-17.2

59.60

27.8

  JCPenney JCP

-17.0

23.30

-33.7

  Rue 21 RUE

-12.2

25.20

16.9

  Joseph A. Banks JOSB

-11.8

42.50

-12.9

BonTon (BONT) was the top performing retail stock in the month of June, catapulting 94.3% to $7.81 per share after the department store retailer reported a 1.5% increase in same-store sales in May, compared to a 2.3% dip in the prior year. Total sales edged up 1.2% to $183.1 million. On a less encouraging note, however, the company adjusted second quarter earnings per share estimates that were slightly below prior outlook. The department store operator has agreed to sell its $475 million private label credit card portfolio to Alliance Data Systems, who will manage the company’s marketing-driven loyalty-based credit card program from now on.
Steinmart (SMRT) jumped 14.9% to $7.33 after announcing a 3.1% increase in comparable store sales in May. Total sales in the month were $101.9 million, a 3.4% increase.
Costco (COST) gained 12.5% to $95 after a successful third quarter in which revenues increased 8%, comps rose 5% (with foreign comps up by an even stronger 8%). Membership fee income rose by 9% even after a double-digit price hike there. Net income increased 19%. In May, comps rose only 4%, however, missing Wall Street expectations. Total sales increased 10% to $72 billion. The company has 602 warehouse store locations, with 435 in the U.S., 82 in Canada, 32 in Mexico, 22 in the U.K., 28 in Asia and three in Australia.
Zumiez (ZUMZ) rose 11.1%, to $39.60, after beating same-store sales estimates for the ninth straight month. Comps rose 13.7% in May, more than double the rate expected by analysts. The 460-store surf and skate retailer announced it would acquire Austria’s Blue Tomato for $75 million (59.5 million euros) in an effort to beef up its European offering and capitalize on the growing popularity of boats sports in Germany, France and nearby countries.
Destination Maternity (DEST) gained 10.8% to $21.60 after second quarter fiscal results exceeded expectations. Sales rose 3% to $137.8 million, and earnings per share of 38 cents beat consensus estimates by a nickel. The company raised full-year guidance by between ten and twelve cents per share. The maternity retailer announced a partnership with American celebrity and fashion designer Jessica Simpson for a new maternity clothing line.
Men’s Wearhouse (MW) was the biggest retail loser in June, plunging 22.8% to $28.10 as first-quarter earnings disappointed. Revenue rose 1.1% to $586.6 million, with a 3% improvement in gross margin. However, profit slipped 1.8% to $26.9 million. Investors fear the slowing economic recovery would hurt sales of men’s suits and corporate apparel. The Board of Directors declared a quarterly cash dividend of $.18 per share payable on September 21, 2012 to shareholders of record as of September 11.
Lululemon (LULU) dropped 17.2% to $59.60. First quarter sales rose 53% to $285.7 million, topping analyst expectations of $272 million, and profit doubled to $46.6 million, also exceeding Wall Street consensus. However, second quarter EPS guidance was revised downward by a few cents per share, alarming investors. KeyBanc Capital Markets downgraded the stock, and there is concern that affluent shoppers, who comprise a significant portion of the brands customer base, may pull back spending.
JCPenney (JCP) fell 17% to $23.30 during the month. None of the news coming out of the venerable department store retailer, currently under new management and undergoing a major transformation, has been particularly encouraging. CEO Ron Johnson announced the company will bring the word “sale” back to its advertising, since the phrase it had been using — “month-long value” — was confusing to customers. Johnson hopes that this will halt the sharp slide in business that resulted in a same-store sales decline of almost 19% in the first fiscal quarter. President and Chief Marketing Officer Michael Francis left the company, another event that failed to inspire confidence. Store traffic is apparently way off, and second quarter sales appear to be only modestly ahead of the previous quarter, but the company is so far standing by its decision to get rid of coupons and offer everyday value.
Rue 21 (RUE) lost 12.2% to $25.20 despite earning $11.6 million, or 46 cents per share in the most recent fiscal quarter, up from $9.6 million, or 38 cents per share, in the same period last year.
Joseph A. Banks (JOSB) dipped 11.8% to $42.50 after the menswear retailer’s quarterly performance fell short of Wall Street expectations. Revenue rose 4.2% to $201.4 million, less than the average of $209 million analysts had hoped for. Earnings of $14.8 million, or 53 cents per share, were down 17% from the prior year period, and miss expectations of 62 cents per share.

Wholesale Gainers and Losers
Although the average wholesale/manufacturer stock fell by almost 10%, there were some impressive showings in June. Two of the top performers, Cherokee and Iconix, are companies that own brands that they license out to retailers and manufacturers. The price of Guess? advanced because investors feel it is undervalued. Two of the worst performers were footwear companies struggling to gain share in a very crowded, competitive environment. Coach has been faltering of late because of the perceived market share gains by Michael Kors in the accessories space.

 

Wholesale

 

Symbol

Month/YTD

% Chg   

5/25/12

Price   

YTD

%Chg

  Cherokee CHKE

19.1

13.93

19.4

  Skechers SKX

16.7

20.37

68.1

  Iconix ICON

12.9

17.47

7.2

  Guess? GES

12.0

30.37

1.8

  Gildan GIL

9.9

27.52

46.5

  Deckers Outdoor DECK

-24.3

44.01

-41.8

  Nike NKE

-19.3

87.78

-8.9

  Coach COH

-15.1

58.48

-4.2

  Fifth & Pacific FNP

-13.3

10.73

24.3

  Genesco GCO

-13.3

60.15

-2.6

Cherokee (CHKE) rose 19.1% to $13.93 after the brand licensing company reported strong first quarter results. Revenue increased 13% to $7.5 million on strong sales of the flagship Cherokee brand at Target. However, SG&A expenses increased by 27% to $4.2 million, putting a crimp in net income, which fell to $2.1 million, or 25 cents per share (including the one-time tax return from California which added 14 cents to the bottom line), from $3.3 million, or 38 cents per share. The company is expanding its offering in Tesco stores in the U.K. for Fall 2012, and has seen growth at many large global partners in Russia, China, Canada and other countries.
Skechers (SKX) jumped 16.7% to $20.37 after Sterne Agee raised its rating for the sneaker maker from “neutral” to “buy” now that the Shape-Ups debacle is behind it (the company agreed to pay $40 million to settle FTC charges that it made unfounded claims that its toning shoes would help people lose weight). New product innovations — including the GOrun performance shoe – and second half 2012 orders are inspiring renewed investor confidence.
Guess? (GES) jumped 12% to $30.37 after Jeffries reiterated its “buy” rating on the stock and increased its price target to $50. The company’s Board authorized a new program to repurchase up to $500 million of its common stock.
Deckers Outdoor (DECK) dropped 24.3% to $44.01, and hit a 52-week low in the month, after the maker of UGGs, whose eggs seem to all be in a sheepskin boot-shaped basket, continue to be impacted by the fallout from higher raw materials costs, slowing sales growth and analyst concern.
Nike (NKE) lost 19.3% to $87.78 after the company announced fourth quarter financial results. Sales rose 12% to $6.5 billion, the largest revenue quarter in company history, but net income fell 8% to $549 million. Gross margin slipped 150 basis points due to higher raw material costs. The company announced it would divest of its Umbro and Cole Haan businesses, allowing the company to focus resources on the core Nike brand. The company’s Kanye West Air Yeezy II shoes debuted in a limited release with a price tag of $245. The shoes are expected to sell on the secondary market for $1,000 and up. Nike unveiled its new Track & Field uniforms for the US Olympic team: full-length bodysuits made from recycled plastic bottles.
Fifth & Pacific (FNP) lost 13.3% to $10.73. The renamed Liz Claiborne company announced that its Kate Spade New York division will acquire its Japanese business from joint venture partner Sanei International.

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