NEW YORK — Despite strong quarterly results from a host of apparel retailers, the WWD Composite Stock Index dipped for a third straight week, falling 8.9 percent to 105.64 on Friday. The S&P 500 dropped 0.3 percent to close at 1,095.66 for the week.
Oil prices reaching record highs coupled with an impending hike in interest rates has The Street focused on a potential pullback in consumer spending going forward.
But while these fears are driving their investment decisions, apparel industry data continues to paint a picture of a consumer whose spending power is still growing. In fact, results from specialty retailers in particular, showed consumers bought more often and were willing to pay full price when they did, a trend that may signal the beginnings of a rebound in the teen apparel market.
In a research note released on Friday, Wachovia Capital Markets analyst Joseph Teklits pointed out that, according to data from the U.S. Department of Labor, apparel prices have gone up for the first time in five years. However, “over the past two years monthly prices have fallen by an average of 2.4 percent from the previous year,” said Teklits. “Over the past five years, the average decline has been 1.9 percent.” The upward trend, said Teklits, was evident from markedly improved margins reported by most retailers during the first quarter. “This firming of prices is likely a combination of tight inventory controls, compelling spring fashions, a better economy and a more upbeat consumer.”
Pacific Sunwear of California Inc. said net income jumped 87.7 percent to $15 million, or 19 cents a diluted share, for the first quarter. By comparison, last year PacSun posted profits of $8 million, or 10 cents. Sales increased 23.6 percent to $245.1 million from $198.3 million a year ago, and same-store sales advanced 12.7 percent. Since last Friday, shares of PacSun decreased 0.6 percent to $20.40.
Fueled by its Hollister concept, Abercrombie & Fitch saw its net jump 16.1 percent to $29.7 million, or 31 cents a diluted share. Comparatively, the company reported earnings of $25.6 million, or 26 cents a share, in the year-ago quarter. Sales for the period increased 18.8 percent to $411.9 million from $346.7 million. Comparable-store sales were flat for the quarter, but as Lehman Brothers analyst Kimberly Greenberger noted in her preview of the company’s earnings, it was the company’s first non-negative comp performance since the first quarter of 2001. Shares of Abercrombie ended the week up 7.7 percent to $34.96.
As expected, Urban Outfitters Inc. thrashed expectations, with earnings rocketing 163.9 percent to $16.9 million, or 41 cents a diluted share, on a sales gain of 59.1 percent to $170.3 million. Comparatively, the company reported earnings of $6.4 million, or 16 cents, on sales of $107 million a year ago. Shares of Urban fell 0.6 percent over the week to close at $46.04 on Friday.
Warrendale, Pa.-based American Eagle wasn’t left out of the specialty party, recording a 292.1 percent earnings increase to $25.1 million, or 34 cents a diluted share, compared with earnings of $6.4 million, or 9 cents a share, in the year-ago quarter. Sales improved 19.9 percent to $350 million from $291.9 million.
“I believe this quarter marks a turning point for our company,” said James O’Donnell, chief executive officer, during the company’s conference call. American Eagle added that its markdown rate was its lowest in five years. Shares fell 3 percent by the end of the week to close at $26.44.
Apparel was a driver for the mass merchant channel, as well. At Target, net earnings climbed to $438 million, or 48 cents, during the quarter compared with earnings of $349 million, or 38 cents. Total revenue jumped to $11.59 billion from $10.32 billion a year ago, while net sales advanced 12.7 percent to $11.25 billion from $9.98 billion. Company-wide, comps improved 6.6 percent. Target shares gave up 0.2 percent, closing at $43.17 for the week.
Wal-Mart saw net income grow to $2.17 billion, or 50 cents a diluted share, from $1.86 billion, or 42 cents, a year ago. Total revenue for the period climbed to $65.44 billion from $57.22 billion last year, while net sales rose to $64.76 billion from $56.72 billion. As for comparable-store sales, Wal-Mart’s U.S. stores increased 5.9 percent and consolidated comps jumped 6.4 percent.
“Gross margin improvement for the quarter resulted from better apparel performance and the benefit of our global sourcing,” said ceo Thomas Schoewe on a prerecorded call. Wal-Mart shares were up 2.5 percent to close at $55.25.
Kohl’s Corp. posted first-quarter earnings that rose 2.5 percent on a 12.5 percent gain in sales. Net income came in at $113.8 million, or 33 cents a diluted share, versus $111 million, or 32 cents, in the same year-ago quarter.
Goldman Sachs analysts George Strachan and Adrianne Shapira noted in their research note that Kohl’s results were “a penny below our estimate.”
“Inventory was well controlled, rising only 2.8 percent versus a 12.4 percent sales increase, and the company achieved strong gross margin results,” they wrote. “But comp-store sales declined 0.1 percent for the quarter on top of a 2.4 percent decline in 2003.”
Kohl’s shares closed the week with a 2.3 percent gain to $42.63.
— Ross Tucker
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