FOLLOWING DOWNGRADES, STOCKS FOR 3 LUXURY FIRMS TAKE HITS

Byline: Thomas Cunningham

NEW YORK — Wednesday was a tough day for luxury stocks as Movado Group fell 37.6 percent, Zale Corp. fell 7.5 percent and Tiffany & Co. fell 4.6 percent after all three issues were downgraded by Wall Street analysts.
On the New York Stock Exchange, Movado fell 6 1/2 to close at 10 13/16 after the watchmaker’s investment rating was downgraded to “buy” from “outperform” by Donaldson, Lufkin & Jenrette and to “hold” from “strong buy” by ING Barings. The banks cut their ratings on the stock following the company’s surprise Tuesday announcement that it would report a fourth-quarter loss.
Also on the New York Stock Exchange, jewelry retailer Zale Corp. fell 3 3/4 to 46 3/16 and jewelry maker Tiffany fell 3 7/16 to 71 7/8 after Merrill Lynch lowered its intermediate-term rating on both stocks to “accumulate” from “buy.”
As reported, Movado said late Tuesday that costs related to its inventory-clearing efforts would lead it to a fourth-quarter loss between $8.7 million and $9.1 million after one-time charges of $8.3 million or 46 cents a share. Including the charges, Movado expects to lose between 67 cents and 71 cents in the quarter, well below the 46-cents-a-share profit expected by Wall Street analysts.
Christine Kilton Augustine, analyst at ING Barings, wrote in a research note: “Although sales of Movado’s core brands performed well during the holiday season, fourth-quarter earnings per share were impacted by a number of factors, including higher percentage of low-margin closeout sales, higher advertising spending and higher infrastructure cost.”
And DLJ analyst Peter Schaeffer said that the company’s earnings hiccup could make it an attractive acquisition for a European luxury company like LVMH Moet Hennessy Louis Vuitton. After Tuesday’s announcement, Movado would probably be worth between $30 and $36 a share, he estimated.
Merrill Lynch analyst Mark Friedman said that although Tiffany’s business seems very healthy globally, its share price could suffer in light of rising interest rates and concern over consumer spending. Despite Merrill Lynch’s rating cut, Friedman maintained his long-term “buy” rating on the stock and reiterated his estimates that Tiffany will earn $2.31 a share this year and $2.72 next year. The company earned $1.95 in 1999.
Zale’s stock, which is up 50 percent in the last month, could also suffer from interest-rate and consumer-spending worries, Friedman said. Nonetheless, the analyst also maintained his long-term “buy” rating on the stock with a price target in the mid-50’s over the next 12 months.

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