Apparel wholesale and retail stocks beat the Dow in October as consumer-facing businesses continued to enhance earnings by cutting costs and keeping prices low in the face of waning consumer confidence and demand.
Apparel retail stocks gained 3.8%, accelerating from September and August, while apparel manufacturer stocks advanced by 3.2% for the month, half of last month’s gain.
The Dow Jones Industrial Average rose by 1.9% in the five-week period from September 27 to October 31, a better-than-expected gain given the impact of the government shutdown during the first half of the month on investor enthusiasm.
Here’s how the top gainers and losers in both the apparel retailer and manufacturer categories did in the month:
Men’s Wearhouse (MW) leaped 24.6% to $42.30 per share after Joseph A. Banks proposed an all-cash $48 per share acquisition of its competitor. Men’s Wearhouse rejected the $2.3 billion offer. Men’s Wearhouse just completed its $98 million acquisition of Joseph Abboud, and is also rumored to be eyeing footwear maker Allen-Edmonds.
Valuevision TV (VVTV) advanced 18.7% to $5.34. Private equity firm Clinton Group reported it had accumulated a 5.8% stake in the TV shopping channel, believing it is undervalued, and expressed the feeling that the CEO and COO should be replaced.
Amazon (AMZN) gained 15.2%, to $364.03. In a challenge to Ebay’s PayPal, the giant e-retailer launched its new “Login and Pay with Amazon” service to help third party merchants process e-payments using Amazon credentials. Amazon beat out IBM on a private cloud computing project for the Central Intelligence Agency worth $600 million over 10 years, even though IBM’s bid was lower. Amazon announced a collaboration with P&G to sell consumer packaged goods online, and is rumored to be at work with HTC on a smart phone. Meanwhile, the company continues to grow its apparel and accessories business, and is beefing up staff in its New York fashion office.
Kohl’s (KSS) rose 9.2% to $56.80, after launching its Catherine Malandrino for DesigNation collection. The limited edition capsule group includes women’s styles with a decidedly Parisian flavor.
Joseph A. Banks (KOSB) edged up 8.6% to $47.95, after it was revealed that the men’s specialty retailer was interested in acquiring Men’s Wearhouse in a deal that analysts said would be immediately and significantly accretive to earnings (see above). There is speculation that Banks will up its offer price and may not be ruling out an eventual hostile bid.
Alco Stores (ALCS) plummeted 21.4% to $11.01, after shareholders failed to approve the proposed acquisition by Mallard Parent and M Acquisition Corporation.
JCPenney (JCP) dove 17.1%, to $7.50, which puts it down by more than 60% year-to-date, after the beleaguered retailer issued $1 million in new shares to raise cash. Analysts were quick to voice their concern. UBS feels the retailer will continue to burn cash in 2014 and beyond, and maintained its “sell” rating. Maxim downgraded it from “buy” to “hold.” Fitch downgraded Penney’s deb to from “B-” to a junk rating of “CCC.” Investor Perry Corporation reduced its stake in the struggling retailer by about 50%. Imperial Capital cut its price target on the stock from $5 to $1. On the brighter side, the retailer said that its same-store-sales slide slowed in September, falling 4% in the month, though 12% in the quarter. Soon-to-be-ex-Saks Inc. CEO Steven Sadove has joined the Penney board, causing speculation that he might be in the running to become CEO or Chairman.
Cititrends (CTRN) dropped 16.6% to $14.68, as Zacks increased its rating on the stock to “outperform” after the specialty retailer posted higher sales and a narrower loss in the second quarter than last year. Net revenues rose 4.2% to $137.8 million, and the loss per share was $.34, compared to $.54 in the same period in 2012. Comparable store sales in women’s apparel fell by single digits, an improvement over the high double-digit declines suffered last year.
Superior Uniform Group (SGC) was the top performing manufacturer stock in October, gaining 21.1% to $15.10. Sales in the third fiscal quarter rose 44% due primarily to the company’s acquisition of uniform maker HPI Direct. Net income rose 20% in the quarter, to $1.5 million, or $.34 per share, compared to $1.2 million, or $.30 per share last year. This year’s earnings include acquisition costs relating to the HPI deal of about $765,000. The board declared a dividend of $.135 per share payable November 25 to shareholders of record as of November 13.
Quiksilver (ZQK) rose 19.5% to $8.32 after announcing it had reached an agreement to sell its snowboard subsidiary, Mervin Manufacturing (maker of the Lib Tech and GNU brands), to Extreme Holdings, Inc., for $51.5 million. It plans to use the proceeds to pay down lines of credits and invest in emerging markets.
Delta Galil (DELTY) gained 19.1% to $23.71 after the underwear and sleepwear maker delivered its sixteenth consecutive quarter of year-over-year sales growth. Sales in the third quarter increased 10% and net income surged 43% to $14.2 million from the prior year period. The board declared a dividend of $.1215 per share, or a total of $3 million (higher than the prior quarter’s $2.5 million dividend) to be distributed on November 20.
Delta Apparel (DLA) rose 15.2% to $18.90, despite less-than favorable financial results for the three-month transition period ending September 28. The transition period was created to accommodate the change in the fiscal year-end from June to September. Net sales fell 7% to $122 million compared to the prior year comparable period. Net income was $.6 million, or $.07 per diluted share, compared with $3.6 million, or $.41 per share. The company blamed the results on weakness at retail, which impacted sales at its Soffe business the most.
Columbia Sportswear (COLM) gained 10.5%, to $66.87 after reporting a third-quarter revenue increase and a higher full-year outlook. Net sales rose 4% to $523.1 million, but net income dropped 15% to $54.6 million, or $1.57 per share, from $64.4 million, or $1.88 per share, last year. The company now expects full-year sales to improve to a decline of just 1.5%. The board approved a 25% increase in the dividend to $.25 per share, payable on December 2 to shareholders of record as of November 14. Citigroup upgraded the stock from “sell” to “neutral.”
Crocs (CROX) fell 10.3% to $12.17, after announcing lackluster earnings results. Third quarter revenue was $289 million, down from $296 million in the prior year quarter. Net income was $13 million, less than a third of the $45.1 earned in the third quarter of 2012. The footwear maker anticipates fourth quarter revenue of between $220 and $225 million and a per-share loss of $.20 to $.23. The board approved an expansion of its stock buyback program to an additional 15 million shares, bringing the total authorized to 17.8 million.
Carter’s (CRI) lost 9%, to $69.15, even though the childrenswear maker reported earnings that beat the Zacks estimate. The 4.7% drop in third-quarter net income, to $56.6 million, or $.97 per share, from $59.4 million, or $.99 per share, reflects expenses related to tits office consolidation and other moves. Revenue rose 14% to $760.2 million, and is expected to grow 10% in the fourth quarter to around $755 million, and to $2.6 billion for the year. The company is facing several challenges, not the least of which are declining birth rates in the U.S. and intensified competition from Walmart, Target, Gap, Children’s Place and others.
Coach (COH) declined 6.6%, to $50.68, after earnings edged down 1.6% in the fiscal first quarter on weak North America sales. Net income fell to $217.9 million, or $.77 per share, from $221.4 million, or $.77 per share, in the year-earlier period. Revenue was $1.15 billion, missing analyst expectations of $1.19 billion. Comp store sales fell 6.8% in North America, well off the 2.9% drop expected by Wall Street. The company’s attempt to reinvent itself as a lifestyle brand has met competitive headwinds, particularly from Michael Kors, whose rapid growth has taken market share from the venerable brand, as well as from Vince Camuto, Kate Spade, and Tory Burch. Argus downgraded the stock from “buy” to “hold.”