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Fashion And Luxury A Split Decision
Wearing brand name labels and a little "bling" wasn't quite as important to consumers during Q1 of 2009, though a couple of "beats" kept the upper-tier clothing names from being a complete bust. Here's a quick rundown of how some major mall favorites and catalog retailers fared in their most recently-reported quarter, followed up with some thoughts about the news that didn't make it into their respective press releases.
IN PICTURES: Digging Out Of Debt In 8 Steps
The Scoreboard
Perry Ellis International (NASDAQ:PERY) earned 46 cents per share for the quarter ending in early May, short of the 60 cents reaped in the same quarter a year earlier, but still better than the 23 cents analysts were expecting. Polo Ralph Lauren Corp. (NYSE:RL) saw a big 57% dip in its fourth-quarter profit, when factoring in one-time restructure charges. The apparel designer earned 44 cents, but would have cleared 86 cents without the charges. That's shy of the $1 figure from Q1 a year ago, but still topped operating earnings estimates of 40 cents.
J Crew Group Inc. (NYSE:JCG) fell short of last year's 48 cents per share by only turning in earnings of 32 cents, but considering the market was only expecting per-share profit of 10 cents, it's no wonder the stock soared 21%. Wet Seal Inc. (NASDAQ:WTSLA) also struggled last quarter, only bringing home five cents per share versus the nine cents per share earning during the first quarter of last year. Analysts were only looking for four cents. Unfortunately, Wet Seal managed to turn their own decent news, sending the stock lower by more than 14%.
And finally, Zale Corporation (NYSE:ZLC) managed to go from bad to worse, losing 73 cents per share for its third quarter. The company "only" lost 40 cents per share in Q3 of last year, while the market was expecting a loss of 46 cents this time around. A reduction in the number of shares exaggerated the per-share loss by 17 cents though, so on a q-o-q basis, the comparable figure would actually be a 56 cent loss. That's little comfort to shareholders. (Learn more, in Analyzing Retail Stocks.)
The Future
As much as I love a turnaround story, Zales shares are expected to lose $1.33 in the year ending in July of 2010. Even if the analysts are underestimating this sub-$4.00 stock by $1.13, that's still a breakeven at best - and the company only managed to earn $1.21 during the 12-month period ending in July of 2007, when consumer euphoria was still going strong. I'm not sure why the stock was up 5% on the earnings news; I think it's way too early to go shopping for the turnaround.
As for Wet Seal, I give then an A+ for honesty, but a D- for timing. While quarterly profits were almost cut in half, the market actually seemed satisfied with Wet Seal's results. Inexplicably though, the company also announced along with its earnings news that the current quarter's profit would be a disappointment. Instead of pulling in the estimated eight cents per share, the retailer was only on track to earn between two and five cents. I appreciate the candidness, I really do, but you've got to at least give your stock a chance to swim for a while. (Learn more in our related article, Five Tricks Companies Use During Earnings Season.)
Mixed Outlook
Investors were clamoring for J Crew shares on Friday, but I don't think they're right. Yes, the 32 cent profit is a heck of a lot better than 22 cent loss suffered during the previous quarter, and the company was profitable for the first three fiscal quarters of 2008 as well. I'm just a little baffled – and concerned - at how the company lost a chunk of change during last Christmas season. Granted, J Crews' merchandise isn't exactly at the top of everyone's Christmas list, but the company has historically posted strong Q4 numbers, which includes December and November. On the other hand, back in March, J Crew was only planning on a seven to 12 cent profit in the first quarter of this year, and somehow ended up with 33 cents. It's still an oddly expensive retailer stock though, and I have to wonder how reliable or consistent any earnings estimates will be.
Final Thoughts
That leaves Perry Ellis and Ralph Lauren, which are actually my two favorites of the five names mentioned. Perry Ellis' estimated full-year earnings of 76 cents this year are not only impressive, but plausible. Ralph Lauren in the meantime, has remained profitable in every quarter throughout the recession so far, so clearly the company's doing something right. (For more, see our Industry Handbook: The Retailing Industry.)
IN PICTURES: Digging Out Of Debt In 8 Steps
The Scoreboard
Perry Ellis International (NASDAQ:PERY) earned 46 cents per share for the quarter ending in early May, short of the 60 cents reaped in the same quarter a year earlier, but still better than the 23 cents analysts were expecting. Polo Ralph Lauren Corp. (NYSE:RL) saw a big 57% dip in its fourth-quarter profit, when factoring in one-time restructure charges. The apparel designer earned 44 cents, but would have cleared 86 cents without the charges. That's shy of the $1 figure from Q1 a year ago, but still topped operating earnings estimates of 40 cents.
J Crew Group Inc. (NYSE:JCG) fell short of last year's 48 cents per share by only turning in earnings of 32 cents, but considering the market was only expecting per-share profit of 10 cents, it's no wonder the stock soared 21%. Wet Seal Inc. (NASDAQ:WTSLA) also struggled last quarter, only bringing home five cents per share versus the nine cents per share earning during the first quarter of last year. Analysts were only looking for four cents. Unfortunately, Wet Seal managed to turn their own decent news, sending the stock lower by more than 14%.
The Future
As much as I love a turnaround story, Zales shares are expected to lose $1.33 in the year ending in July of 2010. Even if the analysts are underestimating this sub-$4.00 stock by $1.13, that's still a breakeven at best - and the company only managed to earn $1.21 during the 12-month period ending in July of 2007, when consumer euphoria was still going strong. I'm not sure why the stock was up 5% on the earnings news; I think it's way too early to go shopping for the turnaround.
As for Wet Seal, I give then an A+ for honesty, but a D- for timing. While quarterly profits were almost cut in half, the market actually seemed satisfied with Wet Seal's results. Inexplicably though, the company also announced along with its earnings news that the current quarter's profit would be a disappointment. Instead of pulling in the estimated eight cents per share, the retailer was only on track to earn between two and five cents. I appreciate the candidness, I really do, but you've got to at least give your stock a chance to swim for a while. (Learn more in our related article, Five Tricks Companies Use During Earnings Season.)
Mixed Outlook
Investors were clamoring for J Crew shares on Friday, but I don't think they're right. Yes, the 32 cent profit is a heck of a lot better than 22 cent loss suffered during the previous quarter, and the company was profitable for the first three fiscal quarters of 2008 as well. I'm just a little baffled – and concerned - at how the company lost a chunk of change during last Christmas season. Granted, J Crews' merchandise isn't exactly at the top of everyone's Christmas list, but the company has historically posted strong Q4 numbers, which includes December and November. On the other hand, back in March, J Crew was only planning on a seven to 12 cent profit in the first quarter of this year, and somehow ended up with 33 cents. It's still an oddly expensive retailer stock though, and I have to wonder how reliable or consistent any earnings estimates will be.
Final Thoughts
That leaves Perry Ellis and Ralph Lauren, which are actually my two favorites of the five names mentioned. Perry Ellis' estimated full-year earnings of 76 cents this year are not only impressive, but plausible. Ralph Lauren in the meantime, has remained profitable in every quarter throughout the recession so far, so clearly the company's doing something right. (For more, see our Industry Handbook: The Retailing Industry.)
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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