Maidenform Brands Inc. did just about everything right in the third quarter, financially speaking — profits topped analyst expectations, sales rose 13.3 percent and the outlook for the year was boosted.
But Wall Street was spooked by a nearly 70 percent rise in inventories and pushed the stock down $2.37, or 8.2 percent, to $26.64. Investors have been keeping a close eye on inventory levels lately, since having too much product on hand can squeeze margins. Retail watchers in general are waiting to see if overall supply is going to trump demand this holiday season, leading to more selling at cut rates.
On a conference call with analysts, Chris Vieth, executive vice president, chief operating officer and chief financial officer, attributed the rise in inventories from a year earlier to some “skittishness in the marketplace in September” that cut down on replenishment orders, the ramp-up of new businesses and low inventories a year earlier.
Eric Beder, analyst at Brean Murray, Carret & Co., bought that explanation.
“The income statement looked great, but people were worried about the balance sheet with inventories rising,” Beder said. “[Inventories] are a little bit heavy, but nothing they can’t work through. They still have very strong momentum in the department stores.”
Sales to department stores rose 8.9 percent during the quarter to $60.2 million, as turnover with the mass channel increased 14.5 percent to $38.8 million.
Net income fell 20.3 percent to $12.8 million, or 55 cents a diluted share, from $16 million, or 67 cents, a year earlier, when the firm registered a $6.1 million, or 25 cent, tax benefit. Profits topped analyst expectations by 2 cents a share.
Overall sales for the quarter ended Oct. 2 rose 13.3 percent to $145.8 million from $128.7 million.
For the nine months, Maidenform’s profits jumped 31.6 percent to $38.6 million, or $1.65 a diluted share, from $29.3 million, or $1.24, a year earlier. Sales increased 22.7 percent to $438.1 million from $357.1 million.
For the full year, the company now expects earnings of $1.90 to $1.94 versus the $1.88 to $1.93 it previously projected.