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Improved Sales and Earnings Buoy Some Retail Apparel Stocks in February

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The Dow Jones Industrial Average rose almost 9% in the five weeks ending March 1, bringing its year-to-date increase to 15.3%. Retail stocks lagged the overall market, gaining only 5.6% in the month, but have still managed to turn in an almost 14% gain for the year so far. The wholesale and manufacturing index jumped by 10.7%, bringing the year-to-date gain to almost 14%.

Fourth-quarter and fiscal year earnings had the biggest impact on stock price movements. Companies that exceeded expectations were rewarded handsomely. Those who fell short were punished — despite the creative excuses they had for their lackluster financial performances.

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Retail Gainers and Losers

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Caché (CACH) was the top performing retail stock in February, jumping 72.2% to $4.08 per share, after it was announced that the former President and CEO of Limited Brands’ Apparel Group, Jay Margolis, would become Chairman and CEO. Margolis, a 30-year veteran of the industry, has an impressive resume, with leadership positions at Liz Claiborne, Tommy Hilfiger, Esprit de Corp, and Reebok. The white horse he rode in on was pretty impressive too: Margolis will invest $1 million into the company and receive a significant equity stake.

Gordman’s (GMAN) gained 16% to $13.45 in February, despite being downgraded by TheStreet Ratings from “hold” to “sell.” The Nebraska-based chain of 83 off-price department stores named Michael Morand EVP and Chief Merchant. Prior to joining Gordman’s in 2007, Morand held various strategic planning and marketing positions at Lord & Taylor and other May Company stores. Gordman’s recently trimmed its revenue guidance for the fourth quarter and fiscal 2012 due to poor comparable store sales and deeper-than-expected discounting.

NY & Co (NWY) gained 12.8% to $4.32 after announcing it expects fourth-quarter operating income of $5 to $6 million, which is on the high end of the company’s previous guidance thanks to better-than-expected revenues and significantly better than the almost $11 million operating loss of last year. The chain of 520 women’s specialty stores announced it had signed a multi-year deal with TV and film actress Eva Mendes to create a seasonal capsule collection of affordable clothing and accessories at the specialty retailer beginning this fall. With all due respect to Ms. Mendes, wouldn’t NY & Co be better off with a celebrity from:  NY? I’ll bet they could find one if they tried.

Stage Stores (SSI) gained 8.6%, to $25.10, after announcing that total and same-store sales rose 18% and 10%, respectively, in January, capping off a successful year for the department store retailer in which sales and earnings promise to meet or exceed guidance.

Bon-Ton Stores (BONT) was the biggest retail loser for month, dropping 20.9% to $10.73, after the department store operator posted declining comps in January and cut its 2012 guidance to a slight loss.

Cititrends (CTRN) was the second biggest retail loser, dropping 18.6% to $10.23 in February after the company reported its turnaround efforts had been slowed by the IRS’s three-week delay of income tax refunds to consumers. Company CEO Ed Anderson reiterates that improved sales is a key company objective, and admitted that they had two other problems — lack of competitive pricing, and some fashion missteps. Unfortunately, they can’t blame those on the government.

Men’s Wearhouse (MW) fell15.9% to $27.88 after investors decided they didn’t like the way fiscal 2012 earnings look. A Cowen & Co. analyst downgraded the stock from “outperform” to “neutral”, citing concern about the retailer’s sales and its profit margins.

Joseph A. Banks (DKS) lost 12.9% to $40.31, after the company warned that 2012 net income could be as much as 20% lower than 2011. Total sales were up for the year, but profits were a different story. The company blamed Hurricane Sandy, uncertainty about the presidential election, and the fiscal cliff. At least they didn’t blame the IRS.

Ann Inc. (LTD) dipped 11.4% to $28.42. Fourth-quarter revenue was weaker than expected by about $20 million, because brightly-colored merchandise didn’t fly with the Loft division’ core consumers, so promotions were increased at the latter half of the Holiday season. Oh, and Hurricane Sandy was a problem too. (Seriously – the CEO actually said that. In other words, it must have been my imagination that there were 40%-off signs in every Ann Taylor and Loft store during the entire month of December.) Consumers are addicted to promotions, and retailers have to either wow them with incredible must-have merchandise at a reasonable price, or throw in the towel.

At least no one was tasteless enough to blame it on Sandy Hook.

Wholesale Gainers and Losers

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Unifi (UFI) rose 35.3% in the month to $15.69, as rising profits continued to impress investors, including company director Kenneth G. Langone, who recently increased his holdings in the company to almost 5% of outstanding shares.

Delta Apparel (DLA) gained 19.4% to $16.61. The owner of Soffe, Junkfood and other sportswear brands announced that Steven E. Cochran will become President and COO. Robert W. Humphreys will remain Chairman and CEO. Although second quarter revenues of $107 million set a new record, net income was negatively impacted by inventory markdowns partly due to high cotton costs that have since become much lower.

Fifth & Pacific (FNP), the company formerly known as Liz Claiborne, gained 14.2% to $17.85. Overall, the holiday quarter was a little better than expected from a sales standpoint, but earnings were a little bit off, because not all of its brands did very well. Basically, Kate Spade is doing great, Lucky Brand is doing so-so, and Juicy Couture is in the tank. However, in December the company hired Paul Blum from Kenneth Cole to turn Juicy around. Hopefully Mr. Blum can help consumers forget velour track suits.

Skechers (SKX) leaped 13.7% to $20.64, after the company beat both revenue and earnings forecasts. Wall Street expected them to lose thirteen cents per share, but the company made 8 cents per share. That momentum is expected to continue. Shape-Upsâ„¢ disappear quickly into the rear-view mirror when income statements and balance sheets are in such phenomenal shape.

Avery-Dennison (AVY) rose 13.6% to $40.88. The company announced it would sell its office- and consumer-products businesses to Canada’s CCL for $500 million, allowing it to focus on its more industrial businesses, including the global Retail Branding and Information Services segment. The company blew past expectations with impressive revenue, earnings and cash flow growth in 2012, in addition to optimistic guidance for the coming year. Interesting side note: Retail products division head Shawn Neville sold over 24,000 shares of his stock for a total of almost $950,000.

Perry Ellis International (PERY) fell 18.87% to $16.24 after the maker of Perry Ellis, Jantzen and Laundry by Shelli Segal reported financials that missed expectations. Many of the company’s brands are sold in the mid-tier markets, which have been sluggish of late.

Coach (COH) fell 5.8% to $48.22 in February. This company has been almost legendary in its ability to mint money quarter-in, quarter-out, but even the best of them hit bumps in the road every now and then. Coach reported disappointing earnings for its most recent quarter that many industry experts felt had Michael Kors’s footprints all over them, presumably because the MK accessories business has eroded so much of Coach’s market share. However, it’s not just MK — Louis Vuitton, Tory Burch, Kate Spade and others in the extremely competitive accessories space can share the credit. In an effort to shore up its businesses and position the company for future growth, Coach made some announcements. First, Victor Luis, President of its international business, has been named heir-apparent to longtime CEO Lew Frankfort, who built the business from a small, sleepy, traditional handbag brand to a multi-billion-dollar luxury powerhouse.  Also, the board declared a quarterly cash dividend of $.30 per share.

 

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