Fourth-quarter profit warnings from Tiffany & Co., VF Corp. and Under Armour Inc. demonstrated on Wednesday the breadth of consumers’ spending retreat, which might just force fashion to reinvent itself.
Even with adjustments in profit guidance coming fast and furious, the full scope of the damage sustained in the fourth quarter won’t be known until after earnings reports begin to arrive next month, although Chapter 11 filings by Gottschalks Inc. and Goody’s Family Clothing Inc., the latter a prelude to liquidation, suggested more pain is on the way.
On Tuesday, Liz Claiborne Inc. said it would break even at best in the quarter, and Kenneth Cole Productions Inc. prepared analysts for steeper losses than they’d estimated.
“The consumer has very much shut off the spigot here and is now driving deflation,” said Leon Nicholas, director of retail insights at the MVI Retail Insights consultancy. “We might be entering into a new normal here. The consumer is not going to spend ahead, is not going to buy a lot on credit. A lot of people are almost writing off 2009. It’s going to be a lost year. There’s a persistent sense of gloom.”
That dread was felt in the markets, where the Standard & Poor’s Retail Index fell 9.99 points to 264.65, dropping more severely than the Dow Jones Industrial Average, which was down 2.9 percent, or 248.42 points, to 8,200.14.
Tiffany said its November and December net sales fell a combined 21 percent to $687.4 million, with sales down 30 percent in the Americas, 2 percent in the Asia-Pacific region and 4 percent in Europe. For the year, Tiffany said profits would range from $2.25 to $2.30 a diluted share, exclusive of one-time charges, and down from the $2.30 to $2.50 range predicted in November. Investors shrugged off the warning and shares of the luxe firm dipped 0.2 percent to $21.95.
Michael Kowalski, chairman and chief executive officer, said, “Deteriorating global economic conditions were clearly reflected in cautious spending by Tiffany customers across the entire range of jewelry categories and price points. These conditions will continue well into 2009. Nevertheless, we are committed to maintaining healthy profitability and are reviewing all elements of our cost structure.”
“There are going to be more profit warnings,” predicted David Lamer, co-founder and managing director at BBD Consultants. “There is no incentive for consumers to shop unless it’s dramatically reduced. What’s going to happen whenever there’s new spring merchandise on the floor that is not discounted? Will the retailer literally start promoting new merchandise right out of the box?”
The answer to those and related questions might well force further changes on the rapidly evolving fashion industry.
“For some time, we’ve had too many stores in search of too few consumers and how that is going to play out in the next 12 to 18 months is going to be fascinating and maybe a bit scary,” said Paul Charron, former chairman and ceo of Liz Claiborne. “Consumer behavior will have been impacted. The retail landscape is going to be different. The retail venues, the shopping centers, the strip malls, the adjacencies, the lease agreements — they will be fundamentally different.”
For now, missed targets and lower expectations seemed to be the orders of the day.
Apparel manufacturing giant VF warned its fourth-quarter earnings and sales would fall short of the already lowered projections. The company also took steps to reduce costs by $100 million annually. Investors pushed shares of the firm up 6.5 percent to $54.05.
Fourth-quarter earnings at VF are expected to range from $1 to $1.05 a share. Exclusive of a charge for the cost savings program, profits will range from $1.30 to $1.35 a share, down from the $1.46 reported a year earlier. Revenues for the quarter are slated to fall 2 percent.
In October, the corporate parent to brands such as Wrangler, Lee and Seven For All Mankind said earnings would rise by 1 to 5 percent, below prior guidance of a 20 percent rise.
“We’ll approach our retail store opening and capital spending plans cautiously and conservatively while we continue to aggressively manage expenses,” said Eric Wiseman, chairman and ceo.
And Under Armour said fourth-quarter earnings would fall short of Wall Street’s projections as cancellations and fewer-than-expected last-minute orders reduced sales and trickled down to the bottom line.
The athletic firm said profits for the fourth quarter ended Dec. 31 would fall to 16 to 18 cents a diluted share. Analysts had been looking for 49 cents a share versus the 34 cents reported in last year’s quarter. Fourth-quarter revenues are now expected to range from $179 million to $180 million, up from $174.8 million a year ago. The company’s stock lost 13.1 percent of its value to close at $19.40.
Traders pushed shares of Kenneth Cole Productions Inc. down 3.5 percent to $5.99 Wednesday. Late Tuesday, the company said fourth-quarter losses would tally 20 to 30 cents a diluted share, higher than analysts’ estimates of a 13-cent loss.
The projection excludes non-operating charges of 40 to 45 cents a share covering, among other cost-cutting initiatives, a 10 percent reduction in headcount and the consolidation of the firm’s Tribeca footwear line into other brands. It is estimated that reductions will save the company about $10 million a year.
“We made a conscious decision to convert our inventory to cash during the peak holiday shopping period to increase our liquidity,” said Jill Granoff, ceo. “While this placed short-term pressure on margins and profitability, we have taken proactive steps to maximize our ability to respond effectively to unforeseen challenges as well as opportunities that may lie ahead.”
Claiborne’s stock continued to slide after the company on Tuesday disclosed it had extended its credit facility, but that fourth-quarter results would range from breakeven to a loss of 15 cents a share, down from the most recent estimate of a 19- to 24-cent profit. The issue fell 8.8 percent to $2.50.
Moody’s Investors Service placed the firm’s “Ba1” corporate family credit rating on review for possible downgrade. “The company’s direct brand segment could come under increased pressure as higher-end consumers showed greater spending restraint, which has been evident in Liz Claiborne’s results as well as in weak same-store sales at luxury department stores,” said the ratings agency.