Apparel wholesale and retail stocks beat the broader market for the second month in a row in November, as leading apparel merchants managed to beat earnings expectations, even in the face of diminished consumer confidence and demand.
Apparel retail stocks gained 5.3%, continuing their accelerating pace of the last two months, and apparel manufacturer stocks advanced by 5.6% for the month, almost twice last month’s gain.
The Dow Jones Industrial Average rose by 3% between November 1 and 29, spending most of the month above 16,000, a new record.
Here’s how the top gainers and losers in both the apparel retailer and manufacturer categories fared last month:
BonTon Stores (BONT) skyrocketed 55.3% to $17.78 per share in the wake of a smaller-than-expected third-quarter loss of $931,000, or $.05 per share, compared to a loss of $10.1 million, or $.55 per share, in the prior year period. Sales in the third quarter dropped 3% to $641.2 million. The York, PA-based chain of 273 department stores is in the middle of a turnaround, and has improved guidance for the rest of the year to levels exceeding analyst consensus estimates. Zacks Investment Research has upgraded the stock to “strong buy.” However, the retailer’s low margins and high debt load has made it one of the most shorted stocks in the market.
JCPenney (JCP) soared 35.9% to $10.19, despite missing third quarter earnings estimates. In the three months ending November 2, the retailer’s loss widened to $489 million, or $1.94 per share, from $123 million, or $.56 per share, in the year-earlier quarter. Analysts had expected a smaller loss. Sales dropped 5.1% to $2.78 billion due to aggressive discounting meant to clean out inventory from the Ron Johnson days and lure core customers back into the stores. Wall Street firm ITG Investment Research increased its sales forecast for the department store chain, citing “improving sales trends in recent weeks.” Penney CEO Myron Ullman said he believed same-store sales would turn positive in the fourth quarter. October same-store sales rose .9%, up 490 basis points from September, and the first positive monthly comp performance since December 2011, as customers responded favorably to promotional events and improved inventory levels of Penney’s old familiar brands. The developments have attracted some new investors to the stock, including Glenview, which bought 3.9 million shares, hedge fund Highfield Capital, (3.2 million shares), Appaloosa Management (737,800 shares), and Jana Partners and Farallon, each of which bought 500,000 shares, according to SEC filings. CEO Ullman also got back into the game, buying 112,000 shares of stock at $8.95 per share.
Men’s Wearhouse (MW) gained 20.9%, to $51.12, after hedge fund Eminence Capital acquired a 9.8% stake in the company, making it the retailer’s largest investor, and urged the board to resume talks with Joseph A. Banks, whose takeover advances it had spurned last month. In an unexpected turn of events, Men’s Wearhouse went alpha male on its pursuer, offering to buy Joseph A. Banks for $55 per share, or about $1.54 billion. Stay tuned.
Joseph A. Banks (JOSB) rose 18.5% to $56.82, after news broke of Men’s Wearhouse’s interest in acquiring its competitor. The Hampstead, MD-based Banks reported that it expects third-quarter earnings to top year-ago performance by at least seven cents per share. Sales in the quarter are expected to climb by mid-single-digits.
Macy’s (M) jumped 15.5% to $53.26, after profit in the third quarter handily beat Wall Street expectations. Net income rose to $177 million, or $.47 per share, from $145 million, or $.26 per share, a year earlier. Sales edged up 3.3% to $6.28 billion, with same-store sales up 3.5%, topping the 2.1% estimated by analysts. The chain reported “particular strength” in October and headed into the holiday season with confidence. The department store chain carries a wide range of products and price points, from $10 tee-shirts to Louis Vuitton handbags. After a sales shortfall this past summer, the retailer increased its selection of lower-priced items to appeal to a more middle market customer, which could put pressure on gross margins going forward.
Tilly’s (TLYS) plunged 17.3% to $12.04, after the teen retailer reported disappointing third-quarter revenue and gave a dismal earnings forecast for the fourth quarter. Revenue slipped 1% to $123.8 million, and net income dove 34%, to $6.1 million, or $.22 per share, from $9.3 million, or $.33 per share, in the prior year period. Analysts were expecting revenue of $132.8 million. The stores are experiencing weak foot traffic and intensified competition. Goldman Sachs cut its rating on the stock from “buy” to “neutral.”
Abercrombie & Fitch (ANF) fell 8.5% to $34.28 after reporting weak quarterly sales and earnings, issuing a disappointing full-year forecast, and announcing plans to close all of its stand-alone Gilly Hicks intimate apparel stores. Third-quarter revenue fell 12% to $1.03 billion, well below the $1.07 billion expected by analysts, and same-store sales dropped by 14%. The company lost $15.6 million, or $.20 per share, shocking Wall Street, which expected a profit of $.44 per share. The company expects double-digit declines in same-store sales in the fourth quarter, and full-year earnings of $1.40 to $1.50 per share, below the $1.55 predicted by analysts. Company management blames its woes on weak spending by teens, and intensified competition from fast fashion retailers like H&M and Forever 21.
Zumiez (ZUMZ) dipped 6.3% to $27.77 after the surf and skate specialty retailer posted a 1.2% increase in October same-store sales and a total sales increase of 10.4% to $46.3 million. The company expects third-quarter revenue of about $190 million, with flat to slightly elevated comps.
Fifth & Pacific (FNP), formerly known as Liz Claiborne, was the biggest gainer among apparel manufacturing stocks in the month, gaining 23.3% to $32.66 after reporting a narrower third-quarter loss than last year and stronger sales in its Kate Spade business. The company posted a loss of $16.87 million, or $.14 per share, compared to $18.8 million, or $.17 per share, last year. Revenue increased 18% to $430.6 million, with most of the increase due to a 76.4% increase at Kate Spade, whose sales totaled $180 million in the quarter. Last month, the company announced it was selling its Juicy Couture business to Authentic Brands group for $195 million in cash, leaving just the Lucky Brand and Kate Spade businesses in its portfolio. Most industry observers believe it will sell Lucky as well, to concentrate its focus on Kate Spade, at which point we might also see another corporate name change.
Deckers Outdoor (DECK) rose 20.1% to $82.64, a 52-week high, after investors concluded the maker of UGG boots was well positioned for the holiday season. An expected cold winter, great response to some of the brand’s newest styles, and its appearance on Oprah’s “Favorite Things” list are all helping a resurgence in popularity of the boots. HOKA One One, a running shoe division of Deckers Outdoor, won the Independent Running Retailers Association (IRRA) Shoe of the Year award for its Bondi B2 running shoe, an ultra-lightweight performance running shoe for men and women that retails for about $150 and features an oversized midsole with high performance cushioning and lower heel drop offset.
Brown Shoe Group (BWS) increased 14.7% to $25.73, despite missing third quarter Wall Street sales estimates. Revenue climbed only 1% to $702.8 million, but earnings jumped 4% to $.63 per share, three cents above consensus views. The company launched a digital flagship for its Sam Edelman shoe brand, where customers can purchase directory from the company for the first time.
Coach (COH) jumped 14.2%, to $57.90, after its board declared a cash dividend of $.3375 per common share, payable January 3 to shareholders of record as of December 6.
Perry Ellis International (PERY) dove 18.3%, to $15.53, after the company cut its outlook below Wall Street expectations. Weak shipments, particularly in its private label business, and softer-than-expected sales in its direct retail channel hurt third quarter sales and are expected to impact business through year-end. The company predicted a loss for the third quarter of between $.15 and $.17 per share, which would fall short of both last year’s $.25 profit and the $.13 expected by analysts. Perry Ellis also lowered its fiscal year guidance, now expecting sales of $960-970 million, well below prior guidance of $990 million. The company noted that both its golf lifestyle business and swimwear line under license agreement with Nike continue to perform well.
Jones Group (JNY) lost 9.7%, to $14.04 after G-III Apparel, which was vying to acquire the company, reportedly dropped out of the bidding process because it would have to take on too much debt to acquire Jones. Private equity firm Sycamore Partners is reportedly in advanced talks to acquire the company, and is working toward a deal that may be announced shortly.
