NEW YORK — After a strong performance through most of March and April, the WWD Composite Stock Index finally lost steam last week, plunging 2.3 percent, or 3.45 points, to close at 120.15 on Friday.
The index had shown some resilience as investors of fashion stocks seemed to be shrugging off bad news such as the escalating violence in Iraq, as well as the threat of rising interest rates.
Indeed, the index was performing better than the S&P 500. But luck ran out as investors pulled back on fashion issues, especially in the softline retailers segment. The S&P 500, by the way, finished the week down 3 percent to 1107.3.
Of the stocks tracked by WWD, Avon Products Inc. ended the week as one of the leading gainers by closing up 6.7 percent, or $5.29, to $84 from $78.71.
The firm surprised Wall Street by releasing first-quarter results a day early. Investors and financial journalists were expecting the cosmetics direct seller to report sales and earnings Friday. Media types had to hustle on Thursday to get Avon’s results in, but investors were pleased: Avon posted earnings that soared 49.7 percent.
Speaking of cosmetics, last week was a beauty for The Estée Lauder Cos., which posted profits that soared 26 percent. For the week, shares of the company gained 4.6 percent, or $1.99, from $43.72 to $45.71.
Meanwhile, at retail, there’s been some anxiety centered on Target Corp., Federated Department Stores and May Department Stores. The Street is patiently waiting for Target to sell its Marshall Field’s nameplate. Federated had said it was exploring the acquisition. Federated closed the week at $49, falling 4.2 percent, or $2.17, from $51.17. May closed at $30.80, dipping 3.6 percent, or $1.14, from $31.94, while Target finished at $43.37, a drop of 3.1 percent, or $1.37, from $44.74.
Looking ahead this week, Wall Street may be contemplating — and celebrating — the future of Kmart Holding Corp., which marks the one-year anniversary of its emergence from Chapter 11 bankruptcy this Friday.
No one should celebrate more than majority owner Ed Lampert, whose holdings are now worth more than $1.7 billion thanks to a stunning run-up in the company’s stock price.
Since Kmart resumed trading on May 7, 2003, its stock has more than tripled. At the end of Nasdaq trading last week, Kmart shares finished at $44.63, a whopping 229.4 percent increase over the $13.55 price per share they fetched when Kmart was a newly reorganized company.
To put that in perspective, Kmart — the third of the big three retailers after Wal-Mart Stores Inc. and Target Corp. — has seen its share price blow past the competition’s. While Kmart shareholders have tripled their money, Wal-Mart’s stockholders have seen their investment appreciate a paltry 4.2 percent over the same period. Indeed, as one of the 30 elite components of the Dow Jones Industrial Average, Wal-Mart’s stagnant stock price has actually acted as a brake on the Dow’s 20 percent increase since last year.
Meanwhile, Target Corp.’s shares have grown an eminently respectable 27.8 percent for that period, but that still pales in comparison to Kmart’s performance, as does the S&P 500, which was up 19 percent as of last week’s close.
Not bad for a company that managed to file for the biggest retail bankruptcy in history.
Among the elements fueling Kmart’s stellar returns are the fact that the company’s stock price at the resumption of trading was so low it had a lot of room to grow. Also, bear in mind that despite its lingering and very real problems, Kmart is still the third-largest player in the very robust discount retail channel and boasts exclusive signature brands such as Martha Stewart Everyday and Joe Boxer. And then there’s chief executive officer Julian Day, who, in taking the reins after a string of overmatched managers, has won the confidence of Wall Street, at least for now.
Finally, with a price-to-earnings ratio for the trailing 12 months of 51.52, Kmart at first looks overpriced — certainly by historical and industry comparisons. However, by the unreal standards of today’s markets — especially the Nasdaq — and given time for Kmart’s earnings to play catch-up, Wall Street is betting that the company’s valuation is quite reasonable.