NEW YORK — Unable to resist cheap stocks, investors rallied Wednesday and took retail stocks along for the ride.
Bullish outlooks from Coach Inc. and Carrefour had a soothing effect. Volatility in the market is also expected to delay an initial public offering of Tommy Hilfiger, sources said, confirming a report in the Financial Times.
Coach’s second-quarter profits, which gained 11 percent, came in ahead of analysts’ estimates by one cent. Richemont’s 8 percent sales gain for its third quarter was in line with estimates. Carrefour delivered a 7 percent sales gain for 2007, and said it expects a sales increase for 2008 of between 6 and 8 percent.
At the bell, the Dow Jones Industrial Average added 298.98 points, closing up 2.5 percent to 12,270.17 while the S&P 500 rose 1.1 percent to 1,338.60. Earlier in the day, the Dow was down over 320 points.
The S&P Retail Index soared 4.2 percent, closing at 410.80 with bargain hunters lifting key retail stocks between 3 and 10 percent. Big gainers included: Aeropostale, up 12.1 percent to $25.96; Bon-Ton Stores, up 15.6 percent to $6.97; and Sears Holdings Corp., up 7.6 percent to $107.39. In the department store channel, Saks Inc. gained 4.9 percent to $17.40 while Macy’s rose 4.6 percent to $25.41.
Earlier in the day, Lew Frankfort, chairman and CEO of Coach, said the economy is in the midst of a consumer-led recession. And although the company said it is facing higher costs in China, the brand’s market position is solid and management expects to navigate the downturn well. Shares of Coach finished the day up 6.2 percent to $29.19.
In a telephone interview, Frankfort said the recession “is unlikely to evaporate anytime soon. A tax stimulus package will help, but this recession needs to run its course. Things should start improving in the second half of calendar 2008.”
For the three months ended Dec. 29, Coach’s net income climbed to $252.3 million, or 69 cents a diluted share, from $227.5 million, or 61 cents, in the same year-ago quarter. Sales grew by 21.4 percent to $978 million from $805.6 million. Same-store sales in North America rose 7 percent, with retail stores down by 1.1 percent and factory store sales up 17.7 percent. In comparison, a year ago comps were up 25.7 percent, with retail stores up 20.8 percent and factory store sales up 33.4 percent.
For the year-end period, the company still expects earnings per share of $2.06 on sales of $3.15 billion, up 20 percent from a year ago. To meet that estimate, second half EPS is expected at 97 cents on sales of $1.5 billion, an increase of 17 percent in the year-ago period.
Frankfort said Coach expects to be able to deliver on its forecasts, in spite of the economic slowdown, because of its “diversified” business model. “We offer innovative and relevant product to enable consumers to update her wardrobe. Accessories have a leading role in updating a woman’s wardrobe. Even when she has reduced her apparel spending, she has at the same time increased her accessories spending,” he said.
While some consumers over the holiday season traded down and bought small leather accessories, there were still consumers trading up and buying $400 handbags, the CEO said. During a conference call to Wall Street, Frankfort emphasized that the one thing consumers are not doing is trading down from full-price to factory store offerings. Michael Tucci, president of the North American retail division, said that he $400 and up category represented 22 percent of handbag sales in 2007, versus 13 percent in 2006.
Coach will continue to introduce new product assortments, but will also include a broader range of smaller-sized bags at “compelling entry price points,” Frankfort said.
Begining Friday, the company will introduce its new Heritage Stripe collection, featuring a coated cotton canvas fabric totes and bags trimmed in leather. The collection is Coach’s first foray into the lightweight PVC fabric arena, a fabrication that Frankfort described as “indestructible.”
Regarding a proposed IPO of Tommy Hilfiger, sources confirmed a story in the Financial Times that said Apax Partners, owner of the company, “could postpone” a planned $2 billion IPO. The report said an investor roadshow was to kick off on Friday. But worries over a consumer spending slowdown and a volatile stock market is causing Apax to reconsider its plans.
Carrefour, meanwhile, cited acquisitions and store openings for its 7 percent 2007 sales gain to 92.3 billion euros, or $126.8 billion. For the quarter, sales gained 10 percent to 25.6 billion euros, or $37 billion.
The firm said it expects a sales gain of 6 to 8 percent this year, describing 2008 as “a breakthrough year.” The company added in a statement that it expects “operating profits to grow faster than sales.”