ANALYSTS PREDICTING MORE STRONG RESULTS FROM THE BIG BRANDS
Byline: Diane E. Picard
NEW YORK — Look for another winning season for the pros — the firms with muscle and recognition.
That’s the word from Wall Street analysts, who — in the wake of solid third-quarter results — say the big branded apparel companies will continue to shine through the holiday shopping season and into 1997.
“The companies with strong names will continue to lead the market, but the mediocre names will suffer,” said Jennifer Black Groves, at Black & Co., Portland, Ore.
She said the market is seeing a shift away from private label purchasing to recognizable names, including heavy hitters such as Jones New York and Liz Claiborne.
Overall, consumers remain focused on branded apparel.
“They are looking for value and quality, which they can find in branded apparel,” said Carol A. Pope, analyst at J.P. Morgan Securities.
The apparel manufacturers’ third-quarter results were in line or slightly ahead of expectations as a result of good top-line gains, Pope said.
“Solid margins, strong sell-throughs and cost controls really helped push the quarter to a good position overall,” she said. “But there were also easy comparisons against weak results a year ago.”
Branded apparel should continue to grow for a couple of quarters — a trend that started this fall — boosted by big rollouts, including Nautica and Tommy Hilfiger for women and the Lauren by Ralph Lauren business at Jones Apparel Group. Hilfiger’s third-quarter figures are due out today.
“Growth from these areas should continue into spring, with new, fresh product,” Pope said. The real test for branded apparel will come a year from now, she noted.
“There will be tougher comparisons,” she said. “It’s not going to be a demise, but it won’t be as robust as this year.”
Theresa Matacia of Montgomery Securities Inc. added that Lauren by Ralph Lauren is rolling out petite sizes, suits, coats and shirts for fall 1997, which will add to the line’s already wide appeal.
The holiday shopping season is expected to be reasonably strong, reflecting relatively high consumer confidence.
But consumers are more willing to wait until the last minute to shop, said Matacia, “which may force the department stores to be more promotional.”
Overall, a survey of 25 publicly owned apparel manufacturers showed third-quarter earnings gained 13.2 percent on a sales gain of 4.4 percent. Earnings for the nine months were ahead 9.4 percent on a sales gain of 4.4 percent. However, earnings results were skewed by high special charges at Authentic Fitness, The Warnaco Group, Hartmarx and OsKosh B’Gosh.
Helping to lift the profit average were sturdy gains by some companies that only went public this year, including Guess, which saw a 46.5 percent hike in third-quarter earnings, adjusted for its initial public offering, and Designer Holdings, with a 93.9 percent profit rise, also adjusted for its IPO.
Turning to the companies that have been publicly held for a long time, Pope said Liz Claiborne earnings surprised the street with good top-line growth in its core business. She said Claiborne should have another good year, helped by the lines it sells to Wal-Mart and Sears, Roebuck and its acquisition of Dooney & Burke.
“They have a lot on their plate, but it’s all good news,” Pope declared.
She expects Claiborne to earn 54 cents a share in the fourth quarter versus 45 cents a year ago and $2.12 in the year versus $1.69.
Montgomery’s Matacia agreed Claiborne had a good quarter but said the company continues to struggle with its career division.
“Liz has not yet successfully worked out its problems there,” she said, adding that while some changes have been made, the career line is troubled by inconsistent fit.
However, Black & Co.’s Groves said the career business at Claiborne is turning around.
“I’m hearing that their sell-throughs are better, helped by better designs,” she said.
Groves expects Claiborne to earn 52 cents in the fourth quarter and $2.10 for the full year.
Matacia said Jones’s third quarter came in 4 cents ahead of estimates, “and sales in their career business posted a 20 percent increase without including the Lauren line.”
Matacia expects Jones to earn 29 cents in the fourth quarter, against 23 cents a year ago.
Pope said Jones’s core business is strong even without the Lauren by Ralph Lauren success.
“Overall, Jones is a strong label — and performs well in good and bad markets — a destination brand,” she said, adding that she expects it to earn $1.48 in 1996 against $1.19 in 1995, adjusted for a 2-for-1 split.
Another consistent winner in the women’s fashion arena is St. John Knits, with a 39.8 percent hike in third-quarter profit. Groves said her fourth-quarter estimate for St. John Knits of 46 cents against 31 cents a year ago was conservative.
“Sell-throughs continue to be great and I don’t see its momentum slowing down at all,” she said.
Warnaco’s operating income was up 29 percent in the third quarter, but the company was hit with a $17.2 million charge related to the realignment of the intimate apparel division and exit of the Hathaway men’s dress shirt business. Warnaco results for the period were depressed by a $1.8 million charge from the terminated merger with Authentic Fitness.
Pope said Warnaco met expectations with a solid performance across the board.
“The only problem they still face is the lingering results of the sale of the Hathaway business, which will close later this month,” she said.
She expects Warnaco to earn 49 cents in the fourth quarter against 42 cents a year ago and $1.52 for the year versus $1.38.
Pope said VF Corp. posted a strong quarter, with denim sales up 9 percent and with strong margins in the segment.
“With so many new entrants into the jeans business, VF’s 9 percent gain is still pretty impressive,” Pope said.
She expects VF to earn $1.25 in the fourth quarter and $4.55 in 1996. In the year-ago fourth quarter, VF lost 57 cents because of restructuring charges. In the year, the company earned $2.41.
Jay Meltzer at LJR Redbook Research noted in a research report that VF’s jeanswear operating margins climbed to 14.3 percent from 13.1 percent last year. He raised his estimate to $4.45 for the year from $4.40.
At Fruit of the Loom, J.P. Morgan’s Pope said, results were solid: “Their operating results were strong and showed the effect of the firm’s cost-cutting efforts. “The real story is in the balance sheet — and the fact that there are lower inventories.”
In the fourth quarter, she expects FTL to earn 44 cents and for 1996 to earn $1.86. After a huge writeoff for the Salem licensed sportswear and Gitano casualwear businesses, FTL lost $4.05 a share in the fourth quarter a year ago.
At Russell Corp., business was “a little light” during the third quarter, Pope said, adding, “Sales to mass merchants were below plan, leading to a shortfall.” However, results were boosted by cost-cutting.
In the fourth quarter, Pope expects Russell to earn 66 cents against 42 cents and about $2 for the year, against $1.38.
At Tultex, licensed apparel was up 14 percent, but active apparel sales were “a little light,” according to Pope.
The company is shifting its sales mix to compensate for the weakness, she noted. Pope expects Tultex to earn 28 cents in the fourth quarter versus 2 cents, and 53 cents in the year against 13 cents.
At Nautica, the men’s collection has been a solid performer, Matacia noted, adding that Nautica and Tommy Hilfiger are planning to expand into Europe in 1997, where the brands are currently under-represented.