Most Recent Articles In Financial
Latest Financial Articles
- Judge Throws Out Bulk of Louis Bacon Defamation Claims Against Peter Nygård
- Hanes, Gildan Open Lower on Mixed-Market Start
- Gildan Stock Slides on Earnings Miss
More Articles By
It’s a new year, but the same old stock market story.
On 2008’s first day of trading, retail shares fell sharply as oil prices reached $100 a barrel for the first time ever. And, after 12 months of steep erosion in the value of retail shares, this year is looking like it will be even more of an uphill battle.
This story first appeared in the January 3, 2008 issue of WWD. Subscribe Today.
But, as always, there are expected to be some standouts. Several analysts see companies such as Nike Inc. and Polo Ralph Lauren as stocks that will do well this year, and at least one retail consultant says Wal-Mart Stores is in the midst of a massive turnaround, especially since macroeconomic factors appear to be heading in the discounter’s direction.
On Wednesday, though, stocks were mired in red. The S&P Retail Index dropped 2.1 percent to 401.39, while the Dow Jones Industrial Average shed 1.7 percent, to 13,043.96, and the broader S&P 500 slid 1.4 percent, ending the day at 1,447.16.
Analysts cited concerns over higher fuel prices as the main catalyst for the day’s retreat. Concerns of rising fuel and energy costs held back retail shares during the second half of 2007, pushing many shares to new, 52-week lows. Analysts are worried that higher energy costs will eat even more into consumer spending after a disappointing holiday shopping season. Consumers have been the engine of the U.S. economy for the past decade, and any indication of a slowdown in consumer spending would have grave consequences for growth.
Meanwhile, a tally of the 175 retail, apparel and footwear stocks tracked by WWD showed 132 decliners and 43 gainers for 2007. The data were compiled by Data Network from Dec. 31, 2006, through the last day of trading in 2007. The bulk of the declining shares saw losses of between 15 and 40 percent. Still, there were some big winners last year, most notably J. Crew Group and Aéropostale.
For the near term, analysts see retail and apparel stocks facing some challenging times. For apparel stocks, a changing retail environment likely will force many vendors to rethink their strategies this year.
“The majority of companies in our universe [of apparel and footwear vendors] have issued a cautious outlook on the remainder of 2007 and first half of 2008, driven by concerns over the housing market, gas prices and weaker U.S. consumer spending,” said Kate McShane, analyst at Citi Investment Research, in her outlook report.
McShane expects apparel vendors to face many of the same challenges in 2008 as they did in 2007, but on a larger scale. Vendors face ongoing pressure from department stores as the channel reassesses brand assortments with a focus on private label while pushing back aggressively on markdown allowances. As a result, McShane said traditional moderate brands such as Liz Claiborne and Phillips-Van Heusen are most at risk.
While consumer spending is likely to slow in the first quarter of 2008, Steve Wieting, Citi’s economist, expects it to bounce back in the second half of the year.
“Our management team recently asserted that the U.S. consumer remains ‘resilient’ during the current period of economic uncertainty, but is being more selective about brands, quality and value,” McShane said. “Indeed, we expect [apparel] companies with stronger brand portfolios, diversified selling channels and well-market value propositions to outperform in 2008.”
Nike, Polo Ralph Lauren and VF Corp. are McShane’s top picks.
Of the top performers for 2007, Deckers Outdoor, maker of Teva and Ugg shoes, took the lead spot with a 158.6 percent surge in share price. Despite sluggish footwear sales this holiday, Ugg continued to post solid sales at full price.
Gaiam, an eco-friendly retailer of home goods and fitness apparel, took the second place spot by gaining 116.96 percent for the year — proving there is potential in the green market. And, although not included in the WWD stock list for 2007, Lululemon’s stock has soared more than 69 percent since its July 2007 initial public offering.
Other top gainers included premium denim maker True Religion with a 39.5 percent jump in shares, and Aéropostale and J. Crew, which grew 28.8 percent and 25.1 percent, respectively, for the year.
True Religion evolved into a “stock to watch” in late 2007 following softening sales in the high-end denim space. Analysts see the company’s lifestyle positioning as a strong positive as other brands’ sales slow. Another stock to keep an eye on is Aéropostale.
“Aéropostale has been a real success story, even more so than Abercrombie & Fitch,” said Craig Johnson, president of Consumer Growth Partners, a consulting and research firm. “And Aéropostale has moved in such a diametrically opposite direction than American Eagle. I hear all of the teens say American Eagle is ‘so over.'”
American Eagle Outfitters dropped 33.5 percent for the year.
Johnson credits Aéropostale’s success to the arrival of Mindy Meads, new chief merchandising officer, in April. “Within six months of her arrival, we have already seen improvements in the merchandise,” Johnson said.
On the M&A front, the eyeing of Saks Inc. as a possible acquisition target by Icelandic firm Bauger Group drove up shares of the high-end department store 16.5 percent for the year to $20.76. Financial sources are keeping close tabs on the retailer’s performance during the holiday shopping season. The share price offer hinges on Saks’ success, sources said.
Other notable gainers in 2007 were Guess, Urban Outfitters and Abercrombie & Fitch, which showed gains of 19.5, 18.4 and 14.9 percent, respectively.
Urban Outfitters’ success is driven by its Anthropologie division, according to analysts.
Another notable gainer was Gap Inc., with a 9.1 percent increase for the year. The specialty retailer, which has been struggling with sluggish sales and merchandise misses, has managed to gain some control over inventories and merchandise margins under new chief executive officer Glenn Murphy.
Retail giant Wal-Mart saw a modest 2.9 percent increase in its stock price for the year, while it’s competitor, Target, dropped 12.4 percent in 2007.
Wal-Mart may be in the middle of one of the largest turnarounds in retail history, achieving a stronger-than-expected holiday season, according to Johnson. “Unlike the continued decline at Macy’s and Sears, Wal-Mart appears to be in a remarkable turnaround,” Johnson said. “Although unnoticed by the Street — and with apparel and home still a work-in-progress — Wal-Mart has undergone a true transformation over the past year, from top to bottom.”
Target, meanwhile, appears to have hit a bump over the holiday season. Target lowered its December sales forecast to the range of down 1 percent to up 1 percent after experiencing lower-than-expected traffic. Management originally expected same-store sales of between 3 and 5 percent.
Of the declining stocks in the retail sector, Coldwater Creek showed the steepest fall with a 72.7 percent drop to $6.69 from $24.52. Merchandise misses and a change in its executive ranks over the past year likely pushed away investors.
Still, other Baby Boomer and misses’ retailers experienced heavy declines, with Talbots falling more than 50 percent for the year and Chico’s FAS dropping more than 56 percent.
Analysts are watching Talbots closely this year as the company goes through a repositioning effort under the leadership of its new ceo and president, Trudy F. Sullivan.
In the department store sector, the accumulative fall in share price for 2007 was startling. J.C. Penney, Sears Holdings Corp., Kohl’s and Macy’s fell 43.1, 39.2, 33.1 and 32.2 percent, respectively.
Weighing the sector down were concerns in the fourth quarter of a retail spending slowdown, sagging consumer confidence and a retreat of the aspirational shopper.
|2007 STOCK PERFORMANCE
(in the retail, apparel, beauty, footwear and related sectors)
|RANK||COMPANY||CLOSE ON 12/29/06||CLOSE ON 12/31/07||AMOUNT CHANGE||PERCENT CHANGE|
|9.||Cost U Less||8.05||11.73||3.68||45.71|
|23.||Tiffany & Co.||39.24||46.03||6.79||17.30|
|26.||Abercrombie & Fitch||69.63||79.97||10.34||14.85|
|39.||National Retail Prop.||22.95||23.38||0.43||1.87|
|48.||Jos. A Bank||29.35||28.45||-0.90||-3.07|
|50.||Tanger Factory Out.||39.08||37.71||-1.37||-3.51|
|71.||Birks & Mayors||7.19||5.95||-1.24||-17.25|
|78.||Polo Ralph Lauren||77.66||61.79||-15.87||-20.44|
|99.||Helen of Troy||24.26||17.14||-7.12||-29.35|
|106.||American Eagle Outfitters||31.21||20.77||-10.44||-33.45|
|114.||Christopher & Banks||18.66||11.45||-7.21||-38.64|
|118.||Alpha Pro Tech||2.80||1.68||-1.12||-40.00|
|SOURCE: Compiled by Data Network, Huntington, N.Y. Note: Information and data herein is believed to be accurate but is not guaranteed. Data Network shall not be liable for any inaccuracies. Stocks tracked by WWD and compiled by Data Network include issues in the retail, apparel, footwear and related sectors.|