NEW YORK — After plummeting on fears of sustained inflation, stocks struggled to make up for heavy losses across most sectors — including retail — last week.
As a result, the WWD Composite Stock Index finished the week down 1.2 percent to 1,110.2 from 1,123.52 while the broader S&P 500 closed the week up 0.6 percent to 1,288.22 from 1,280.52. Analysts described the movement of the stock market last week as a slog up a muddy hill. The mud, in this case, being a once-firm economic base that is softening from inflationary price trends.
That’s not to say there weren’t any winners on Wall Street. On Thursday, shares of Movado Group Inc. soared more than 23 percent to $23.11 after the watchmaker posted first-quarter profits that jumped to $2.9 million, or 11 cents a diluted share, from $997,000, or 4 cents, in the same period last year on sales that rose 11.3 percent to $97.7 million from $87.8 million.
Efraim Grinberg, president and chief executive officer of the Paramus, N.J.-based company, said, “Fiscal 2007 was jump-started by an excellent response from our retail partners to the powerful array of new products debuted at the Basel Watch Fair. In our luxury category, Ebel sparked excitement with the introduction of Brasilia, an important new collection that is already showing encouraging initial sell-through.”
Rick Cote, executive vice president and chief operating officer, said in a statement that, in addition to the robust sales performance, “our global team demonstrated strong operating disciplines, which translated into expanded gross margins and operating profit growth. We continue to invest behind our Movado Boutiques, the worldwide growth of Ebel and the development of our licensed brands. As we begin to reap the benefits of these investments, we expect to grow our operating margin through a combination of gross margin improvement and the leveraging of our existing infrastructure.”
Same-store sales at the company’s Movado Boutiques rose 4.5 percent for the quarter. The gross margin rate rose to 61 percent from 60.2 percent in the prior year, while operating profits climbed to $3.4 million from $2.1 million.
Meanwhile, Dress Barn posted fiscal third-quarter earnings per share of 29 cents, which was ahead of expectations by 3 cents. In the prior year, the retailer posted an EPS of 17 cents.
As a result, C.L. King analyst Mark Montagna said he was raising his rating on Dress Barn to a “strong buy” with a 12-month $30 target price.
“The two key drivers are valuation and expectations of outperformance to surprisingly strong guidance,” he said in a report. “The valuation metrics on Dress Barn have declined 18 percent since we initiated coverage with a ‘neutral’ rating on April 24. This represents a buying opportunity.”
Montagna said the retailer has “substantially exceeded its [EPS] guidance for the past year and we expect outperformance to its surprisingly high [fiscal 2007] EPS guidance of $1.25 to $1.30.”
In other stock market news, Adidas AG said Friday that it was instituting a four-for-one stock split approved at its annual shareholders’ meeting May 11. The Herzogenaurach, Germany-based firm said the split would go into effect on June 6.
“This share split will ensure that consumers who use and enjoy our products every day are able to invest even more easily in our company,” Herbert Hainer, chairman and ceo of Adidas AG, said in a statement. Shares in Adidas gained 0.8 percent Friday to close at 155.44 euros, or $200.95 at current exchange, on the Frankfurt Stock Exchange.
Regarding retail comps last Thursday, May’s results came in stronger than analysts had expected. Several forecasters, including Citigroup and the International Council of Shopping Centers, clocked May same-store sales as gaining about 4 to 4.5 percent. Still, the market was jittery over the impact of higher fuel costs, especially on cash-strapped shoppers of mass merchants.
On Friday, the National Association of Credit Managers released its monthly survey that painted a picture of a changing economy. The NACM’s Combined Credit Manager’s Index fell 2.6 percent for May on a seasonally adjusted basis. “While seven of the 10 components remain above the 50 percent mark, indicating economic expansion, the decline was relatively large and quite widespread,” the NACM said in a statement.
“Only twice in over four years has the combined index fallen more, and all 10 of the components in the combined index fell. The size and breadth of the decline suggests a definitive, structural change that outstrips any random month-to-month change,” said Dan North, chief economist with credit insurer Euler Hermes ACI, in a statement.
North went on to say that, despite strength in recent government releases, “it is likely that the combination of rising oil prices and interest rates continues to quietly erode the strength of the economy in the background.”
On the mergers and acquisitions front, the Hilco Organization, known primarily for asset valuation and disposition, said it formed Hilco Retail Acquisitions. HRA will be headed up by Michael Lynch, who had a nearly 30-year career with Kmart. His was ceo of Kmart Canada until he joined Hilco Merchant Resources in 2000, which handles retail inventory disposition. The company said that HRA will look for “stressed,” but not necessarily “distressed,” retailers.
“Our ultimate goal is to increase enterprise value. We are interested in acquiring underperforming retail operations, divestitures from larger retail operations or platforms whose entrepreneurial founders are ready to exit the business,” Lynch said in a statement.