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Jones, Liz Claiborne Swept Up in Dow’s Plunge

Declines come as most retail chains report lower earnings or larger losses.

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Stocks swooned again Thursday, establishing a new low for the bear market and clamping down ever harder on companies dependent on consumer spending — including two of fashion’s marquee names.

This story first appeared in the November 21, 2008 issue of WWD.  Subscribe Today.


Jones Apparel Group Inc. saw the value of its shares fall 47.6 percent, while Liz Claiborne Inc.’s shares declined 22.5 percent. So far this week, Jones and Claiborne have each lost more than 50 percent of their stock’s value.

The declines came as chains across the retail spectrum reported results for the third quarter that almost universally boiled down to the same message: lower earnings or larger losses. The only exceptions were Gap Inc. and Buckle Inc., while Wall Street’s problems weighed on stocks reporting results in the morning, including Stein Mart Inc. (down 16.8 percent to $1.09) and New York & Co. Inc.

Some of the declines at Jones and Claiborne can be attributed to moves by institutional investors, which are forced to sell when market capitalizations reach certain levels. Both companies also have credit facilities coming due next year and investors are increasingly concerned about the ability of any company to secure financing given the turmoil in the banking sector.

William L. McComb, chief executive officer of Claiborne, said Lazard Asset Management sold 12 million shares of Claiborne because the vendor’s market capitalization had fallen below $500 million. At the end of September, Lazard was the company’s second largest stockholder.

“Lazard, they were a great shareholder and they are referring us to their small-cap groups,” McComb said. “I know that the value of the credit default swaps, put options and short selling over the last three days on our stock has been incredible.”

McComb maintained the stock drop does not equal a liquidity problem, but acknowledged liquidity concerns on the part of investors have pushed shares down. Claiborne’s credit facility expires at the end of October 2009 and the company is talking to its banks about the timing and structure of an amended and extended facility.

“The stocks that are perceived to be under liquidity pressure, even though ours is, by the way, a year away — a year away — are absolutely being punished,” McComb said, referring to the firm’s credit facility. “I can’t say or predict how low it could go. What I know is we are doing what we said we were going to do. We’re controlling the controllable.”

The string of poor results Thursday contributed to another day when retail stocks fell to an historic low. The Standard & Poor’s Retail Index registered its fifth straight day of losses and fell 4 percent, or 8.96 points, to 213.50, a new record low since its June 2002 recalibration.

After another late-day plummet, the Dow Jones Industrial Average fell 5.6 percent, or 444.99 points, to 7,552.29, a new low for the current downturn, which until Thursday seemed to have settled with 8,000 as a floor. It was the lowest close since March 2003.

“Any stocks that are levered to the consumer, have consumer exposure, there’s just not investor interest,” said Mimi Bartow, director and analyst at Telsey Advisory Group.

Traders are also straying away from stocks with smaller market capitalizations and companies carrying any degree of debt, Bartow said.

“Anyone who has any leverage on their balance sheet, it’s like a triple whammy,” she said. “In this environment, investors are just literally running to the hills on those types of names.”

Few are willing to guess where the bottom is.

“When is cheap cheap enough?” Bartow asked. “Where do we start to see that bad news just doesn’t bring these stocks down?”

Jones’ stock fell to $2.53 cents, 88.6 percent below the high for the past year. Shares of Claiborne fell to $1.65, down 93.6 percent from the 52-week high.

A company spokesman said that Jones knows “of no specific reason for the movement in our stock price.”

“It is kind of crazy what’s been happening to these stocks,” said Erin Ashley Smith, an equity analyst who covers Claiborne at Argus Research. “Some investors are just like, ‘I want to get out of here before things just fall apart.’ It will be interesting to see where it opens at tomorrow if there are some people who come into the stock.”

Smith said Claiborne, which is in the midst of a major turnaround effort led by McComb, has been underperforming for some time and hurt by weakness in the department store sector.

Department store and national chain stocks were also taken to task by investors Thursday. Among the decliners were Dillard’s Inc., down 9.9 percent to $2.83; Nordstrom Inc., 6.5 percent to $8.40; J.C. Penney Co. Inc., 5.5 percent to $14.38, and Kohl’s Corp., 5.3 percent to $24.98.

Shares of Saks Inc. rose 5.8 percent to $3.30, even as Fitch Ratings reduced its rating on the company’s debt.

Other vendors with slipping stock prices included Phillips-Van Heusen Corp., off 9.1 percent to $13.63; Kenneth Cole Productions Inc., 6.6 percent to $6.21, and The Warnaco Group Inc., 4.9 percent to $12.64.

Stocks losing ground in the specialty store sector included two of the companies filing earnings reports — New York & Co Inc., down 28.8 percent to $1.04, and The Wet Seal Inc., 17.8 percent to $1.85. Although big decliners included Pacific Sunwear of California Inc., 13.9 percent to $1.18, and Caché Inc., 15.3 percent to $1.72.

SPECIALTY STORES

Stringent inventory and cost management allowed Gap Inc. to report improved — and better-than-expected — third-quarter profits despite a double-digit decline in same-store sales.

The San Francisco-based firm, the largest U.S.-based apparel specialty chain, also maintained earnings guidance for the full year.

Net income for the quarter grew 3.4 percent to $246 million, or 36 cents a share, up from $238 million, or 30 cents a share, last year. Net sales contracted 7.6 percent to $3.56 billion, from $3.85 billion. Analysts expected earnings of 34 cents a share on sales of $3.57 billion, according to Yahoo Finance.

Gross margin improved to 38.7 percent of sales from 37.5 percent in the prior-year period, and inventory was down 13 percent.

Gap said that, by the end of the quarter, it had $1.6 billion in cash and investments on hand, and that it will pay down $138 million of debt coming due on Dec. 15, leaving the retailer with just $50 million out of a current total of $188 million.

Comparable-store sales for the quarter dropped 12 percent, with Gap North America, Banana Republic, Old Navy and the international division reporting decreases of 7, 11, 18 and 1 percent, respectively. The direct segment, which includes sales from the fitness apparel direct marketer Athleta acquired in September, grew 15 percent.

Old Navy has shown signs of improvement as the new fashion mix began hitting stores last month, chairman and chief executive officer Glenn Murphy said. With a redefined target customer, namely a 29-year-old woman shopping for a family on a budget, Old Navy is getting back to basics and rolling out more value-oriented merchandise, he said.

The turnaround is “not going to happen overnight,” Murphy said, but he expects to see Old Navy turn a corner once the full assortment of targeted apparel comes to stores next month.

Murphy also said he was “disappointed” with Banana’s results because the brand has yet to take advantage of its unique positioning as a “more attractive alternative to the luxury segment.” Murphy said Banana is working on producing a more balanced, “emotional” collection as a result.

Taking into consideration the company’s results and focus on maintaining a healthy margin, reducing costs and improving on return on capital, Murphy said he feels good as the company heads into the fourth quarter.

“We are more competitive than we were last year,” he said. “Having said that, there’s no question the fourth quarter is going be challenging. As we look into 2009, we don’t see any near-term improvement” in the economy.

For the nine months, net income jumped 27.5 percent, to $724 million, or $1 a share, compared with $568 million, or 70 cents a share. Net sales shrunk 5.8 percent to $10.44 billion, from $11.09 billion

Capital spending, which totaled $315 million through the third quarter, is expected to be $450 million by year’s end, from $519 million in 2007.

Gap said it has opened 92 stores and closed 69, down from the 187 it opened and 127 it closed last year. The company expects to have opened a total of about 100 stores and closed about 115 by the end of this year.

Full-year earnings guidance was maintained at between $1.30 and $1.35 a share. Analysts are looking for $1.33 a share on revenues of $14.72 billion.

Meanwhile, Buckle Inc., bolstered by surging sales in its women’s business, gave new meaning to the analyst term “outperform” Thursday when it reported double-digit gains in profits, net sales and same-store sales in the third quarter.

Other specialty stores reporting results for the quarter ended Nov. 1 failed to put together this winning combination, although The Wet Seal Inc. did reverse a year-ago loss and New York & Company Inc. cut back on red ink, despite expectations of a fourth-quarter loss. At Cato Corp. and Zumiez Inc., profits fell on lower same-store sales.

All five firms saw their stock prices decline on Thursday, with New York & Co. dropping the most followed by Wet Seal. Despite its strong showing, Buckle was down 5.3 percent to $14.58, while Zumiez, which reported after the close of the market, and Cato ticked down a modest 0.2 percent and 0.1 percent, respectively.

Net income for Buckle climbed 31 percent to $29.1 million, or 62 cents a diluted share, from $22.2 million, or 48 cents a share, last year. Without a one-time charge of 2 cents related to investment losses, the Kearney, Neb.-based company earned 64 cents a share. Revenue grew 25.7 percent, to $210.6 million from $167.6 million. Same-store sales grew 19.1 percent during the quarter, down slightly from the 23.7 percent year-to-date increase.

Women’s wear sales rose about 29.5 percent for the quarter, while men’s sales grew about 21 percent, as the company increased price points 2 percent in the women’s division and 11.5 percent in the men’s division.

Dennis Nelson, Buckle’s president and chief executive officer, credited the growth in the women’s segment to the company’s denim business. “I think there’s a lot of ladies over 25 as well as under 25 who are finding that we have a great selection of denim and that’s been good for our business,” he said. “And also the word of mouth is kind of getting out there, which is a plus.”

For the nine months, profits grew 51.7 percent to $70.1 million, or $1.50 a share, from $46.2 million, or $1 a share, in 2007. Net sales rose 30.9 percent to $540.6 million from $412.9 million.

While the 388-unit Buckle did not provide guidance, it said it plans to open 20 stores next year and remodel about 20. Analysts expect fourth-quarter earnings per share of 73 cents on revenue of $236.6 million, and full-year EPS of $2.20 on sales of $777.3 million.

Despite a comparable-store sales decline, Wet Seal pulled out a third-quarter profit against a year-ago loss and projected it would make money in the fourth quarter despite another comp dip.

Net income was $6.8 million, or 7 cents a diluted share, compared with a loss of $3.3 million, or 4 cents, in the year-ago quarter. The 2007 quarter included separation charges in connection with the departure of its then-ceo Joel Waller, as well $500,000 in fees for the recruitment of Ed Thomas as the new ceo. Sales declined 2.4 percent to $146.6 million from $150.3 million, while total comps fell 7.6 percent. By division, Wet Seal comps were down 3 percent and Arden B.’s dropped 25 percent.

For the nine months, income jumped to $25.9 million, or 26 cents a diluted share, from $11 million, or 11 cents, a year ago. Sales were up 1.5 percent to $438.1 million from $431.6 million.

Wet Seal expects fourth-quarter diluted EPS in the range of 6 to 10 cents and sales between $155.4 million and $160.8 million despite a 10 to 13 percent fall in comps.

Women’s apparel specialty retailer New York & Co. narrowed its third-quarter loss, but predicted it would lose money in the fourth quarter, contrary to analysts’ earlier expectations of a profit.

For the quarter ended Nov. 1, the New York-based firm reported a net loss of $7.9 million, or 13 cents a diluted share, versus a loss of $16 million, or 26 cents a share, in the year-ago period. Excluding a charge of 3 cents a share in the most recent quarter, the loss was 10 cents a share, matching the consensus estimate of analysts. Net sales fell 9.9 percent to $249 million, below consensus, from $276.4 million. Comparable-store sales decreased 14 percent for the quarter.

“We will continue to manage our business through turbulent times by focusing on maximizing cash flow and maintaining our financial strength, so that we are well-positioned for growth when the environment improves,” said chairman and ceo Richard Crystal, adding the company ended the quarter with $41 million in cash, reduced long-term debt and had no outstanding borrowings under its revolving credit facility.

For the nine months, the retailer registered profits of $7.6 million, or 12 cents a share, versus a net loss of $11.7 million, or 19 cents, in 2007. Net sales slid 2.5 percent to $814.8 million from $835.5 million.

The company said it expects a loss of between 5 and 20 cents a share in the fourth quarter due to a projected decline in comps in the high single-digit range.

Zumiez reported a fall in third-quarter profits late Thursday, but met Wall Street expectations. Profits at the Everett, Wash.-based board sports retailer fell 16.3 percent to $6.8 million, or 23 cents a diluted share, matching the consensus estimate, from $8.1 million, or 28 cents a share, in last year’s quarter. Sales rose 7.9 percent to $112.2 million compared with $104 million a year ago. Comparable-store sales fell 5.8 percent in the quarter.

The company maintained earnings guidance of 52 to 57 cents for the full year based on what Brooks described as “a slowdown in traffic levels and a heightened promotional environment.”

In the first nine months of the year, profits slid 15.3 percent to $10.9 million, or 37 cents a share, from $12.9 million, or 44 cents a share, last year. Sales in the first three quarters rose 11.1 percent to $283.2 million from $254.8 million a year ago.

Women’s specialty chain Cato said its third-quarter profit for the three months ended Nov. 1 dipped 72 percent to $823,000, or 3 cents a share, from $2.9 million, or 9 cents, in the year-ago period. Total revenues inched down 1.1 percent to $182.8 million from $184.8 million, which included a retail sales decline of 1.1 percent to $179.8 million from $181.9 million. Same-store sales fell 2 percent in the quarter. The balance of revenues include finance, late fees and layaway charges.

DEPARTMENT STORES

Broadlines retailers had little to show but losses for their efforts at cost cutting and inventory control in the third quarter.

The Bon-Ton Stores Inc. trimmed its loss for the quarter, while projecting a larger loss for the current one, while Stage Stores Inc. and off-pricer Stein Mart Inc. saw losses grow on weakened demand and, in Stage’s case, the effects of two hurricanes.

Quarterly losses at Bon-Ton narrowed to $14.3 million, or 85 cents a share, from $19.4 million, or $1.17, in last year’s period. Sales for the three months ended Nov. 1 slid 7.2 percent to $724.9 million from $780.8 million as comparable-store sales fell 8.3 percent.

Despite the third-quarter improvement, the York, Pa.-based department store reduced its full-year projection to steeper losses of $1.70 to $2.30 a diluted share, below the $1.17 to $1.67 previously anticipated.

“I believe we are financially strong,” Bud Bergren, president and chief executive officer, said on a conference call. The regional department store had excess borrowing capacity of $214 million at the beginning of the month, $139 million above the $75 million minimum availability covenant.

For the first nine months of the year, Bon-Ton’s losses widened to $82.2 million, or $4.90 a share, from $63.6 million, or $3.86, a year ago. Sales fell 5.8 percent to $2.1 billion from $2.23 billion.

The double-barreled impact of two hurricanes and a goodwill impairment charge for its Peebles and BC Moore acquisitions left Stage Stores with a more than $100 million loss in the third quarter.

In the three months ended Nov. 1, net loss hit $102.8 million, or $2.66 a diluted share. Of this amount, $95.4 million, or $2.47 a share, was attributable to an impairment charge related to Peebles and BC Moore. In the year-ago quarter, Stage reported net income of $2.4 million, or 6 cents a diluted share.

Sales fell 6 percent to $333.8 million from $355.1 million in the 2007 period. Same-store sales fell 10.3 percent, a figure the firm estimated would have been 7.6 percent without the impact of Hurricanes Gustav and Ike on the Houston-based operator of 744 department stores in 38 states.

Andy Hall, president and ceo, said the company would reduce capital expenditures next year to $55 million, down from about $80 million this year, and “moderate” store openings to between 30 and 40. He noted inventories were down 13 percent on a same-store basis and that selling, general and administrative expenses were $2.2 million below year-ago levels, despite the addition of 44 stores.

The firm now expects same-store sales to fall 8 to 10 percent in the fourth quarter, lowering sales to between $448 million and $457 million, versus $473 million in the final quarter of 2007. Earnings are projected to drop to 64 cents to 70 cents a diluted share from 78 cents in last year’s period.

For the nine months, the net loss, including the impairment charge, was $90.9 million, or $2.37 a diluted share, versus net income of $21.4 million, or 49 cents, in last year’s quarter. Sales dropped 1.2 percent to $1.06 billion from $1.07 billion. Same-store sales contracted 5.6 percent.

Even with its focus on offering lower prices than the specialty and department store competition, Stein Mart said third-quarter losses widened to $14.1 million, or 34 cents a share, from $2.7 million, or 6 cents, because of increased markdowns to move goods and higher expenses relative to sales.

Sales for the period ended Nov. 1 fell 10.4 percent to $298.8 million from $333.3 million. Comparable-store sales dropped 12.6 percent.

“Third quarter was, in a word, unprecedented,” Linda Farthing, president and ceo, told analysts on a conference call. “I don’t need to tell you how customers appear to be paralyzed by the daily headlines.”

Farthing said the firm’s target customers were “badly shaken” and have a diminished appetite for shopping.

“It has become a battle to get her into the door and, once there, it takes a surprisingly deep discount to open her wallet,” she said.

Stein Mart began looking for a successor for Farthing last month. Farthing has been a director of the firm since 1999 and took on the role of ceo in September 2007 following the resignation of Michael Fisher. She will remain on the board once a new chief is found.

For the first nine months of the year, Stein Mart racked up losses of $15.1 million, or 37 cents a share, compared with year-ago profits of $7.6 million, or 18 cents. Sales declined 7.5 percent to $962.6 million from $1.04 billion.

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