This week, some apparel and accessory producers and retailers offer a look at how they've been doing between early summer's economic stimulus spending and the coming holiday season. While Polo Ralph Lauren Corp. (NYSE: RL) reported higher earnings last week, Coldwater Creek Inc. (NASDAQ: CWTR), Eddie Bauer Holdings Inc. (NASDAQ: EBHI), Kenneth Cole Productions Inc. (NYSE: KCP), and K-Swiss Inc. (NASDAQ: KSWS) all reported net losses as consumers pulled back on spending over the summer due to higher fuel prices and other economic worries. The expectations of analysts surveyed by Thomson Financial for such companies scheduled to report this week don't look much different; i.e., a bright spot or two among lower expectations overall.
Hip retailer Urban Outfitters Inc. (NASDAQ: URBN) is expected to post earnings 22.9% higher than a year ago, to $0.35 per share, on revenue of $475.9 million (+26.4%). The Philadelphia-based company already said that same-store sales in the quarter were 10% higher. Urban Outfitters has beat expectations in recent quarters, by 11.5% in the previous quarter, and analysts on average recommend buying URBN. Shares fell to a 52-week low of $16.61 per share on Friday, and are down 29.5% from a year ago. Other companies expected to report more modest earnings growth in the coming week include watch and accessory maker Fossil Inc. (NASDAQ: FOSL), retail giant Wal-Mart Stores Inc. (NYSE: WMT), and TJX Companies Inc. (NYSE: TJX), parent of such discount retail chains as T.J. Maxx and Marshalls. These three companies have tended to top analysts estimates in recent quarters, and Fossil and TJX ended the week near their 52-week lows.
While Los Angeles-based American Apparel Inc. (AMEX: APP) had a strong second quarter, the casual wear maker is expected to report $0.13 per share earnings for the third quarter, the same as in the year-ago period. And analysts anticipate that Kohl's Corp. (NYSE: KSS) will report that profits fell 16.4% to $0.51 per share on revenue of $3.9 billion (+1.9%). Though same-store sales for October fell 9%, the Menomonee Falls, Wis.-based company reaffirmed its third-quarter forecast. Kohl's has offered positive surprises in recent quarters, topping estimates by 5.6% in the previous quarter. The consensus recommendation remains to buy KSS. Shares have been climbing after reaching a 52-week low in late October, but are still down 32.8% from a year ago.
Baird expects Thor Industries (NYSE: THO) to benefit from industry consolidation and the eventual recovery. Shares were upgraded to Neutral from Underperform.
Jefferies upgraded SPSS Inc. (NASDAQ: SPSS) to Buy from Hold on valuation and believes the company's cost cuts will be positive for EPS. The company's target was lowered to $28 from $29.
Banc of America upgraded shares of Entergy (NYSE: ETR) to Buy from Neutral on valuation and believes the company is unlikely to spin-off Enexus by year-end. They believe a spin-off in 2009 or no spin at all suggests a higher share price from current levels. The company's target was raised to $104 from $101.50.
AMN Healthcare (NYSE: AMN) was upgraded to hold from Sell at Citigroup.
Fossil, Inc. (NASDAQ: FOSL), the maker of watches and trendy apparel, surprised the Street this morning with stronger-than-expected second-quarter earnings. The retailer multiplied the positive momentum by boosting its full-year forecast. This double dose of good news has sent shares of Fossil more than 8% higher in early-morning trading.
For the recently concluded quarter, net income soared 71% to $25.1 million, or 36 cents per share, while net sales jumped 15% to $353.2 million. The results exceeded Fossil's own forecast, provided in May, for a profit of 29 cents per share on sales growth of 12% to 14%. Analysts had even more modest expectations, with the consensus calling for a profit of 25 cents per share on $346.9 million in revenue.
Digging deeper into the second-quarter figures, gross margin rose from 49.1% to 53.9%, thanks to cost-cutting initiatives and inventory management. Same-store sales climbed 5.7%, while direct-to-consumer sales surged 25%. Domestic watch sales grew by 2.3%, and international wholesale sales rose 20% (or 9.5%, excluding currency fluctuations).
Even with the stimulus checks, retail sales numbers for June and July have been nothing to cheer about. And this coming week should provide another look at how things have been shaping up in the apparel and accessories arena. A number of companies are scheduled to release quarterly numbers, from upscale retailer Nordstrom to the parent of discounter TJ Maxx, from hipster Urban Outfitters to global giant Wal-Mart. Here's a look at what Wall Street is anticipating.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
After hitting a one-year low of $24.81 in August, the stock hit a one-year high of $46.25 in December. This morning, FOSL opened at $34.46. So far today the stock has hit a low of $33.33 and a high of $35.65. As of 1:15, FOSL is trading at $33.98, down $3.27 (-8.8%). The chart for FOSL looks bullish and deteriorating slightly, while S&P gives the stock a bullish 4 Stars (out of 5) Buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in four and a half months as long as FOSL is below $45 at September expiration. Fossil would have to rise by more than 33% before we would start to lose money. Learn more about this type of trade here.
Following a risk/reward reassessment, UBS AG (NYSE: UBS) decided to wind down its Switzerland-based private banking business for rich U.S. clients; the decision was announced internally in late December, but confirmed publicly this week, the Financial Times reported.
OTHER PAPERS:
According to the Economic Times, after the dissolution of a proposed joint venture with Rajesh Exports, Fossil Incorporated (NASDAQ: FOSL), the U.S. fashion accessories giant, is set to enter India on its own.
MOST NOTEWORTHY: Semiconductor stocks, Norfolk Southern and Textron were today's noteworthy downgrades:
Banc of America downgraded semiconductor stocks as they believe the cyclical recovery that began in early 2007 has "run its course." Banc of America reduced its estimates for sales of integrated circuits in 2008 and lowered their 2008 semiconductor sales growth to 7% from 11%. The firm downgraded Advanced Micro (NYSE: AMD) to Sell from Neutral as they believe the company's Barcelona product will not stem market share losses in servers and desktops vs. Intel (NASDAQ: INTC). They also believe AMD's cost structure will be pressured by higher depreciation and higher material costs in 2008.
JP Morgan downgraded Norfolk Southern (NYSE: NSC) to Neutral from Overweight citing continued weakness in volumes vs. easy Q4 comps, lack of visibility into an upturn and lack of catalysts.
Citigroup lowered its rating on Textron (NYSE: TXT) to Hold from Buy on valuation, as they see a less compelling risk/reward following the 2007 rally.
OTHER DOWNGRADES:
Fossil (NASDAQ: FOSL) was downgraded to Neutral from Buy at Piper.
When it comes to fashion, some firms just seem to have a knack for running with the trendy leaders. One of them is a Richardson, Texas outfit that makes so many different popular accessories that it's sometimes difficult to remember that the company's main product is watches.
Fossil (NASDAQ: FOSL) designs, markets and distributes fashion watches and accessories. Brands include its own Fossil and Relic timepieces, plus private-label watches for Walt Disney (NYSE: DIS) and Wal-Mart (NYSE: WMT). The company also produces watches for name fashion designers and distributes such trendy fashion accessories as leather goods, sunglasses, and a line of apparel. Its products are sold through department stores, specialty shops, the Internet and through more than 200 company stores.
The firm had good news for investors earlier in the week, when it announced Q3 EPS of 46 cents and revenues of $358.6 million. Analysts had been expecting 34 cents and $343.2 million. Management also guided Q4 EPS to 67 cents (67 cent consensus), predicted FY07 EPS of $1.79 ($1.58 consensus) and announced a two million share repurchase program. The CFO expressed confidence in the company's globally diversified business model. More than half of Fossil's sales are generated outside the United States. The stock popped through 30-day and 50-day moving average resistance on the news and has since passed into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the shares with three "strong buys," one "buy" and two "holds." Analysts see a 24% growth rate through the next year. The FOSL PEG ratio (1.43), Sales Growth rate (19.65%) and EPS Growth rate (48.39%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 73% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $20.59 and $42.17. A stop-loss of $35.65 looks good here.
Fossil, Inc. (Nasdaq: FOSL) is a fashion apparel company investors rarely hear about as it markets watches, jewelry and clothing accessories under proprietary and licensed brands. None the less, Fossil is posting some numbers of interest to investors. According to the recent 3Q 2007 earnings report, net sales are up 20% to $358.6 million, gross profit is up 26% to $187 million, operating income is up 47% to $48.5 million, net income is up 41% to $40.5 million, and diluted earnings per share (EPS) is up 39% to $0.43. These are whopping increases on fair-sized numbers.
Also in Fossil's favor is the fact that 50% of its sales come from outside the U.S., so the company is taking advantage of currency exchanges. The company is looking at a good holiday selling season, particularly in Europe, where net sales increased 28%. International wholesale orders are up 32%.
Fossil management is not depending just on these good numbers. The company is still focused on cutting expenses and better inventory control. Cost of inventory decreased slightly in 3Q 2007, despite 34 additional new stores. Interest expenses decreased $825,000, and the company is shifting its product lines to higher profit margin items. Fossil just inked a licensing deal with Burberry, good through 2012. At $41.36, up 4% on the earnings news, this under the radar stock may be worth a look.
When it comes to fashion, some firms just seem to have a knack for running with the trendy leaders. One of them is a Richardson, Texas outfit that makes so many different popular accessories that it's sometimes difficult to remember that the company's main product is watches.
Fossil (NASDAQ: FOSL) designs, markets and distributes fashion watches and accessories. Brands include its own Fossil and Relic timepieces, plus private-label watches for Walt Disney (NYSE: DIS) and Wal-Mart (NYSE: WMT). The company also produces watches for name fashion designers and distributes such fashion accessories as leather goods, sunglasses, and a line of apparel. Its products are sold through department stores, specialty shops, the Internet and through more than 200 company stores.
The firm had good news for investors last week, when it announced Q2 EPS of 26 cents and revenues of $306.5 million. Analysts had been expecting 19 cents and $294.8 million. The CFO attributed the solid results to inventory control and reduced operating expenses. He also cited new accessory businesses in guiding FY07 EPS to $1.72 ($1.48 consensus). Piper Jaffray subsequently upgraded the shares to "outperform".
MOST NOTEWORTHY: JDSU (JDSU), MasterCard (MA), GlobalSanta Fe (GSF), Molson Coors (TAP) and TRW Inc (TRW) were today's notable upgrades:
BMO Capital upgraded JDSU (NASDAQ: JDSU) to Market Perform from Underperform based on valuation and good industry fundamentals.
AG Edwards considers MasterCard (NYSE: MA) a defensive payments play, upgraded shares to Buy from Hold, and would use weakness to build positions in the stock.
GlobalSanta Fe (NYSE: GSF) was upgraded at Bernstein to Market Perform from Underperform based on the merger with Transocean (RIG).
Molson Coors (NYSE: TAP) was upgraded to Buy from Neutral at Goldman based on valuation and potential increased free cash flow in 2008.
TRW Inc (NYSE: TRW) was upgraded to Buy from Sell at Goldman...
OTHER UPGRADES:
Thomas Weisel raised Network Appliance (NASDAQ: NTAP) to Overweight from Market Weight.
MOST NOTEWORTHY: Progress Energy Inc (PGN), Mattel inc (MAT), Career Education Corp and (CECO) were some of today's notable upgrades:
JP Morgan upgraded shares of Progress Energy Inc (NYSE: PGN) to Neutral from Underweight citing the company's improving earnings profile.
Lehman upgraded shares of Mattel Inc (NYSE: MAT) to Equal Weight from Underweight with a $26 target, citing increased traction at retail stores for Barbie as well as expectations for 10% earnings growth.
Career Education Corp (NASDAQ: CECO) was upgraded to Neutral from Underperform at Credit Suisse as they believe general start growth will bottom in 4Q/1Q and that its University division will return to positive start growth in 3Q07.
OTHER UPGRADES:
Pacific Growth upgraded shares of Marvell Technology Group ltd (NASDAQ: MRVL) to Buy from Neutral to reflect the aggressive transfer of the Intel (NASDAQ: INTC) cell phone foundry business.
Both Soleil Securities and Bank of America upgraded Warner Music Group Corp (NYSE: WMG) to Buy from Hold with a $23 target in order to reflect the company's improved fundamentals; they believe Warner's balance sheet restructuring bodes well for earnings.
Merrill Lynch upgraded JetBlue Airways Corp (NASDAQ: JBLU) to Buy from Neutral on valuation.
Diamond Offshore Drilling Inc (NYSE: DO) was added to Goldman Sachs' Conviction Buy List.
CIBC upgraded Wells Fargo & Co (NYSE: WFC) to Sector Outperformer from Sector Performer, citing valuation and the $8 billion in excess capital in the coffers.
Wachovia upgraded Fossil, Inc (NASDAQ: FOSL) to Outperform from Market Perform.
HSBC upgraded Sony Corp (NYSE: SNE) to Neutral from Underweight.
This week, some apparel and accessory producers and retailers offer a look at how they've been doing between early summer's economic stimulus spending and the coming holiday season. While Polo Ralph Lauren Corp. (NYSE: RL) reported higher earnings last week, Coldwater Creek Inc. (NASDAQ: CWTR), Eddie Bauer Holdings Inc. (NASDAQ: EBHI), Kenneth Cole Productions Inc. (NYSE: KCP), and K-Swiss Inc. (NASDAQ: KSWS) all reported net losses as consumers pulled back on spending over the summer due to higher fuel prices and other economic worries. The expectations of analysts surveyed by Thomson Financial for such companies scheduled to report this week don't look much different; i.e., a bright spot or two among lower expectations overall..gif){kind=logo}
Even with the stimulus checks, retail sales numbers for June and July have been 
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million. Analysts had been expecting 34 cents and $343.2 million. Management also guided Q4 EPS to 67 cents (67 cent consensus), predicted FY07 EPS of $1.79 ($1.58 consensus) and announced a two million share repurchase program. The CFO expressed confidence in the company's globally diversified business model. More than half of Fossil's sales are generated outside the United States. The stock popped through 30-day and 50-day moving average resistance on the news and has since passed into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside. 
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