WWD.com/beauty-industry-news/financial/when-it-rains-it-pours-586525/
government-trade
government-trade

When It Rains, It Pours

NEW YORK — Vendors not only are keeping a wary eye on Federated and May to see if they become one, they’re slogging their way though what turned out to be a difficult end to 2004.<BR><BR>There also might be some cyclical factors, such as...

NEW YORK — Vendors not only are keeping a wary eye on Federated and May to see if they become one, they’re slogging their way though what turned out to be a difficult end to 2004.

There also might be some cyclical factors, such as consumer need and inventory levels, that restrain vendors’ business in 2005.

Within the last week, Kellwood Co. and Jones Apparel Group warned their fourth-quarter earnings would come in well below projections. Both attributed the shortfalls to higher-than-expected sales to the off-price channel and steep markdown payments.

Kellwood said earnings from continuing operations for the quarter ended Jan. 29 would fall to about $6.5 million, or 23 cents a diluted share. The firm had been projecting earnings of $13.7 million, or 48 cents.

Jones reduced profit expectations for its quarter ended Dec. 31 to 28 cents to 30 cents compared with the 40 cents to 45 cents previously anticipated.

Conditions might continue to be difficult for the firms.

Merrill Lynch analyst Virginia Genereux in a research note Monday recommended that investors take a “relatively defensive posture toward” branded apparel stocks.

Genereux does not rate Kellwood, but does follow Polo Ralph Lauren Corp., Liz Claiborne Inc., Tommy Hilfiger Corp. and Jones. The analyst also downgraded Polo, suggesting the firm’s earnings expectations are too aggressive, and upgraded Claiborne on the strength of its portfolio of brands.

Branded manufacturers will continue to face cyclical head winds with difficult comparisons from the same-store sales, inventory and fashion perspectives, said Genereux.

“While several vendors and retailers talked last spring about a new era of ever-lean inventories, weaker outlooks from vendors including Jones, Oxford and Kenneth Cole reinforce our long-held view that retailers order product based on last season’s trends, setting up alternate years of lean and heavy inventories,” she said.

Vendors are going up against an especially active period last spring when a slate of better brands were introduced or relaunched, including Lauren by Ralph Lauren, Jones New York Signature and H Hilfiger.

“There were some genuinely strong sales in the better zone, and one question is whether that more mature female customer needs to replenish her wardrobe again for spring,” said Genereux.

This story first appeared in the January 26, 2005 issue of WWD.  Subscribe Today.

Many of last year’s launches were more fashion-forward, which could lead the trend to swing back too far the other way.

“It is possible we are now setting up for an excess of basic product, which could also contribute to an already likely scenario of weakish sales-excess inventory levels this year,” said Genereux.