J. Crew Group (NYSE: JCG) issued a Q4 report that the market seemed to like. The retailer posted a loss of 22 cents per share on Tuesday after the bell. As I said in my earnings preview, Wall Street was bracing for a loss of 27 cents per share. That five-penny beat helped to send J. Crew's shares up by well over 10% in the after-hours session.
I think the buying was a bit overdone. Sure, I'll give credit where credit is due. Management did beat the analysts and their precious earnings models. How much credit should I give beyond that?
Same-store sales plunged a very unlucky 13%. Consumers just don't want to pay up for anything. It doesn't matter what's being sold. This is the issue that all fashion retailers are facing. And having the distraction of moving inventory through a supply chain as quickly as possible unfortunately means that retail managements cannot focus on building brand equity through innovative marketing campaigns and programs to improve customer loyalty.
Well, I suppose that customers might become loyal to J. Crew's markdowns, although that is not the type of loyalty shareholders want to see.
It's always difficult to say exactly when a stock may have bottomed out. In J. Crew's case, I simply think there could be more downside to come. Management doesn't seem to have a lot of visibility at its disposal, and I don't have a lot of confidence in the company's ability to be ahead of the curve in terms of identifying some killer fashion trends.
Plus, keep in mind that all retailers are fighting it out with each other in terms of markdowns. Mall colleagues such as Gap (NYSE: GPS), Abercrombie & Fitch (NYSE: ANF), American Eagle Outfitters (NYSE: AEO), and Aeropostale (NYSE: ARO) are all trying to get the attention of the consumer. There's too much risk to opening a position in J. Crew, at least in my opinion.
Disclosure: I don't own any company mentioned; positions can change without notice.
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