Despite sliding in the last week of the month, The Dow Jones Industrial Average managed to turn in a 3% gain in the four weeks ending September 27, bringing its year-to-date increase to 17.9%.
Apparel retail stocks rose by 4.3%, boosting their nine-month increase to 17.7%, while apparel manufacturer stocks surged ahead 6% in the month, twice as fast as the Dow, and a whopping 36% so far this year. Most of the retail stock gainers could credit their movements to better-than-expected second-quarter earnings, while wholesale and manufacturing stocks benefited from earnings performance strength and a growing perception that the tide is turning in favor of domestically-made product.
Although the fear of military action in Syria has been calmed somewhat by diplomatic advances, encouraging economic news was tempered by concerns over the looming government shutdown were a drag on the overall market.
Here’s how some of the top gainers and losers in both the apparel retailing and manufacturing categories fared last month:
Sears Holdings (SHLD) was the biggest retail gainer, up 33.5% to $59.05 per share, after Baker Street Capital, one of its large shareholders, said in a research note that the retailer is worth $100 per share based on its vast and undervalued real estate. However, in a report presumably in response, Credit Suisse pointed out that “real life has a way of impeding on numerical analysis,” and that regardless of real estate, “Sears Holdings is a reporting company, and four days each year, investors get reminded how weak Sears is as an operating entity.” Credit Suisse reiterated its “underperform” rating on the stock and reduced its target price to $20, the lowest official price target among Wall Street analysts, citing liquidation costs that would need to accompany any sell-off in real estate assets. Meanwhile, Sears Canada Chief Executive Calvin McDonald resigned just two and a half years after joining the company, apparently over disagreements with Sears Chairman and CEO Eddie Lampert over how much capital is needed to turn the business around. Sears is also reportedly trying to secure a term loan of as much as $1 billion to pay down borrowings under a revolving credit line.
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Christopher & Banks (CBK) advanced 32.3% to $7.33. The specialty retailer reported a smaller-than expected second-quarter loss of $265,000, or $.01 per share, compared to a loss of $2.2 million, or $.06 per share, in the year-ago period. Comps increased 7.7%. The company, which tends to focus on baby boom consumers, remains cautiously optimistic as it emerges from a post-recession restructuring, and anticipates a mid-single-digit third-quarter comparable-store sales increase.
Ascena Retail Group (ASNA) gained 22.6%, to $20.01 after fiscal fourth-quarter profit came in far ahead of expectations. The owner of Justice, Lane Bryant, Catherine’s and Dress Barn reported net income of $29.8 million, or $.18 per share, up from $1.6 million, or $.01 per share, in the year-earlier period. After adjusting for costs associated with the Charming Shoppes acquisition (from which it kept Lane Bryant after selling Fashion Bug and other assets), it earned $.34 per share in the most recent quarter. Most of the increase in profits was due to a 270-basis-point gain in gross margin. The company expects fiscal year earnings per share of between $1.25 and $1.30, and expects same-store sales growth in the low single digits. FBR Capital upgraded the stock from “underperform” to “market perform.”
JCPenney (JCP) plummeted 27.5% to $9.05, making it the biggest retail loser in a month in which there was much more bad news than good news surrounding the national chain department store. Although numerous hedge funds (including Glenview, Soros, and Hayman) are revealing sizable investments in the company in the wake of its split from activist investor William Ackman, Vornado Realty Chairman and CEO Steven Roth has resigned from the board, and apparently plans to sell Vornado’s 13.4 million shares of JCP stock. Bodum Group has sued Penney for breach of contract, saying the retailer didn’t deliver on its promise to build and roll out in-store shops to showcase Bodum’s upscale coffee presses and other products. Goldman Sachs initiated coverage on the stock with an “underperform” rating. Citigroup slashed its price target on the shares to $7, and feels the company might run out of cash in 2014. The company announced it had begun a public offering of up to 96 million shares of stock, a move that could significantly dilute existing share holders.
Francesca’s Holdings (FRAN) plunged 21.6%, to $18.92, almost 50% below its 52-week high, after releasing disappointing second quarter results and predicting that the weakness would continue due to slowing store traffic. Quarterly net income rose to $14.6 million, or 33 cents per share, from $12.7 million, or $.28 per share, a year earlier. Net sales rose 17 percent to $89.6 million. Analysts had expected a profit of $.35 per share on revenue of $94.5 million. Comparable sales in the second quarter declined 1%. Management now sees third-quarter sales of $78 -$80 million, below market estimates of $89.7 million, and profit of $.19 to $.21 per share, lower than the consensus of $.30 per share. The company expects comparable-store sales to decline by 2-5 %. Francesca’s and some of its executives have been charged in several class action lawsuits with issuing a series of materially false and misleading statements about the Company’s business and prospects. Zack’s downgraded the stock to “strong sell.”
Urban Outfitters (URBN) dropped 11.6% to $37.07, as the operator of Urban Outfitters, Anthropologie and Free People forecast a slowing of same-store sales that will depress second-half results. The company’s board authorized the repurchase of 10 million common shares. Stifel Nicolaus maintained a “buy” rating on the stock, but trimmed the price target from $52 to $46. Sterne Agee initiated coverage of the stock with a “buy” rating.
Men’s Wearhouse (MW) dropped 9.8% to $33.96 after the tailored clothing specialty retailer reported a 28% drop in net income in the second quarter on below-forecast sales. Revenue was $647.3 million, well below analyst estimates of $671 million, and earnings came in at $1.01 per share, short of the expected $1.14. CEO Doug Ewart chalked a lot of the underperformance to macroeconomic factors, but also thinks there’s a deeper, psychic reason for sluggish tailored clothing sales: triskaidekaphobia, or fear of the number 13. On the quarterly investor conference call, Ewart said that the fact that it’s 2013 has caused a small but meaningful number of couples to avoid getting married this year.
Quiksilver (ZQK) was the top performing manufacturer stock in September, gaining 40.6% to $6.96 after third-quarter net income surpassed Wall Street expectations. Although earnings of $1.8 million, or a penny per share, were down sharply from a year ago, adjusted for restructuring costs the company earned $.10 per share, well above analyst estimates of $.06. Stifel Nicolaus rates the shares a “buy” with a $9 price target.
G-III Apparel (GIII) rose 19.1% to $54.56 after second-quarter profits more than doubled to $3.6 million, or $.17 per share, from $1.4 million, or $.07 per share, on a 12% revenue increase to $304 million. Analysts were expecting net income of $.10 per share on sales of $288 million. The company, which sells clothing and accessories under the Marc New York, Calvin Klein, Kenneth Cole, and sports teams/college brands, expects to earn $3.35 per share in the fiscal year on $1.6 billion in revenue, up $.10 per share from prior estimates.
R.G. Barry (DFZ) gained 17.3% to $18.69 after the maker of Dearfoams slippers, Baggallini handbags and other soft accessories reported a solid performance for the fiscal year ending June. Although sales declined 6% to $147 million and net income fell 8% to $13.3 million due to the discontinuation of lower-margin and licensed footwear products, gross margin rose 40 basis points. The company confirmed that it had received an unsolicited acquisition proposal from Mill Road Capital Management to take the company private for $20 per share.
Nike (NKE) rose 17.2% to $73.64, after releasing impressive second-quarter results. Revenue increased 8% to $7 billion. Nike brand sales were $6.5 billion, up 7% on a currency neutral basis, with particular strength in running, basketball soccer and men’s training offsetting a slight decline in sportswear. Converse revenues were just under $500 million, up 16% on a currency neutral basis. Net income in the quarter rose to $780, or $.86 per share, from $567 million, or $.63 per share, in the prior year period. The footwear and apparel giant replaced Alcoa in the Dow Jones Industrial average.
Phillips-Van Heusen (PVH) droppeded 8%, to $118.51, after the Calvin Klein and Tommy Hilfiger parent released second-quarter results that exceeded its prior guidance and Zack’s estimates but missed the targets set by other Wall Street analysts. Revenue rose 47% to $1.97 billion from the year-earlier quarter, helped largely by the acquisition of Maidenform, which boosted Calvin Klein and heritage brand sales. Tommy Hilfiger sales rose by over 10%. Earnings per share dropped 41% to $1.39 compared to $2.34 in the year-ago period, reflecting increased SG&A expense from the acquisition. Company management, which has remained consistently conservative in the recent past despite managing to beat market expectations several quarters in a row, is staying cautious about the remainder of the year, citing macroeconomic headwinds.
Culp Fabrics (CFI) dropped 2.8%, to $18.63. The maker of mattress fabrics declared a cash dividend of $.04 per share payable October 15 to stockholders of record October 1.
Guess? (GES) edged down 1.3% to $30.11. Although the company’s first-quarter results beat expectations, with sales at $639 million (vs. the expected $823.6 million) and earnings of $.52, compared to the $.35 per share consensus, the company faces a very tough selling environment in Southern Europe that it expects to impact sales in the near future.