STOCK WEAK, BUT WALL STREET OPTIMISTIC
Byline: Thomas J. Ryan
NEW YORK — Despite the sluggish performance of Tommy Hilfiger Corp.’s stock, Wall Street remains relatively bullish.
Shares closed Wednesday at 26 7/16, up 1 7/16, but still near its 52-week low of 23 and well off the year’s high of 41 1/16.
Zacks Research shows that of the 13 analysts who cover the firm, seven have a “strong buy” recommendation and six a “moderate buy.”
Analysts said the stock weakness partly reflects the fact that investors are not interested in the apparel sector.
“A big problem with Hilfiger is that it’s not a technology stock,” said Leslie McCall, at Brown Bros. Harriman.
Analysts also said apparel issues come under pressure just before the holiday season because of fears that Christmas will come in weaker than expected.
“Apparel has been soft around the country and across channels in recent weeks,” said Margaret Mager at Goldman Sachs. “Unless this changes, investors will drive apparel stocks down as the market climbs the Christmas wall of worry.”
Hilfiger’s management has also expressed caution about its growth next year. While issuing its second-quarter figures in early November, the firm cited signs of eroding consumer confidence, greater promotions and heightened competition from new entrants in department stores, and market share gains by youth-oriented specialty stores.
In addition, the firm, whose revenues reached $1.64 billion last year, said it is now more susceptible to general macroeconomic trends because of its size. Hilfiger said it will wait until January to provide more details about its outlook.
Management’s more cautionary stance didn’t cause a rash of estimate cuts, although Banc of America Securities eased its rating to “buy” from “strong buy.” Banc of America’s Susan Silverstein pointed out that misses and men’s jeans are already reaching “critical mass in terms of square footage,” although she predicted “significant growth” in juniors and children’s.
Carol Murray of Salomon Smith Barney, who holds a “strong buy” rating, said some investors are “less comfortable with the risk portfolio growing going forward than they have been previously because women’s and juniors is a different business than men’s wear. Obviously, I don’t agree ”
Brown Bros. McCall, who also has a “strong buy” rating, said juniors should be a strong growth vehicle because department stores are desperate for a “flagship brand like Tommy to compete against middle-of-the-mall specialty stores” such as Abercrombie & Fitch, American Eagle Outfitters and Bebe.
Analysts also don’t believe the Hilfiger brand has lost its panache. Josie Esquivel, at Morgan Stanley, said, “We remain aggressive buyers of TOM [the firm’s stock symbol], as we believe management’s commitment to building the brand worldwide will reward shareholders over the long term.”