First quarter results for apparel retailers reporting earnings on Wednesday were mixed, as consumers continue to scale back their spending.
Talbots Inc. (NYSE: TLB) first-quarter profit dropped 69% to 3 cents per share, hurt by noncore operations and restructuring charges. Same-store sales fell 9.8% during the quarter, and revenue fell 5% to $542.4 million, which missed the estimates of analysts polled by Thomson Financial. Shares rose 6% Wednesday to $7.88.
Hot Topic Inc. (NASDAQ: HOTT) first-quarter loss widened to 3 cents per share due to a 2.8% drop in same-store sales. Revenue rose 1.1% to $159 million. Analysts had expected a loss of 4 cents per share on $159.3 million in revenue. Shares fell 13 cents, or 2.6%, to $4.84.
Tween Brands Inc. (NYSE: TWB) first-quarter profit declined on a hefty charge, but results still topped Wall Street expectations. Adjusted earnings per share were 21 cents, and revenues rose to $251.7 million. Analysts had expected 16 cents in earnings per share and sales of $242 million. Total same-store sales decreased 1%. Shares fell more than 10% to $19.20, but rebounded 7.5% in after-hours trading.
A few years back, The Onion ran a spoof article in which it claimed that Microsoft was trying to copyright ones and zeros, in an attempt to corner the market on binary code. Of course, the problem with satire is, just when you think you've hit the jackpot on ridiculousness, reality trumps you.
Recently, Juicy Couture Inc. filed a lawsuit against Victoria's Secret, claiming that the lingerie giant had stolen many of its marketing gimmicks and design features. Among other things, Juicy stated that Victoria's Secret had copied:
Juicy's packaging, which resembles candy (Lingerie disguised as candy?!? Didn't Spencer's Gifts come up with this idea somewhere around 1978?).
Juicy's most popular color scheme, which revolves around the color pink (Pink? For girls? Clearly, Juicy's designers are underappreciated revolutionaries!).
Juicy's most popular design, in which its logo is emblazoned across the backside of the wearer (I wonder if Juicy's next step will be to go after all the lower-back tattoo wearers out there. Tramp-stampers, beware!).
While Victoria's Secret (a subsidiary of Limited Brands, Inc.: NYSE: LTD) may well be guilty of plundering the ideas of others (in particular, Katerina Plew, whose lawsuit seems to have a little more merit), it seems like Juicy is getting a little ridiculous. Intellectual property is all well and good, but is it legitimate to copyright the color pink?
Still, as a luxury item, lingerie is probably not selling all that well right now. Maybe Juicy needs the dough?
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase.
Encouraging news for retailers showing a rebound in consumer spending during the past month came after world's largest retailer Wal-Mart Stores Inc. (NYSE: WMT) announced a rise of 2.6% for its February same-store sales. The company said that its same-store sales during the period were helped by strong gains from gas, food and flat-panel TVs. Analysts were expecting the retailer show an increase of 1.1% for its same-store sales, according to Thomson Financial.
Among other retailers that showed a rebound in February sales were Costco Wholesale Corp. (NASDAQ: COST) and Saks Inc. (NYSE: SKS), both of which reported stronger-than-expected gains. Apparel retailers Pacific Sunwear of California Inc. (NASDAQ: PSUN) also reported earnings results exceeding estimates of 6% sales growth last month.
For Limited Brands Inc. (NYSE: LTD), though, February didn't come with positive results. The company stated that higher energy and food prices put pressure on consumers who focused on necessities.
In a short story in the Wall Street Journal [subscription required], Sharen Turney, chief executive of of Victoria's Secret, confided during a conference call that the lingerie chain may have gotten off track at some point and may now be just too sexy.
Can there be such a thing as too sexy? There are times you can be too trashy, or too slutty, but can you be too sexy? I think not!
It may be that some of the advertisements on television are inappropriate for the time-slot. It may be that at times the ads are viewed like soft porn and teenage boys are the first to peruse the monthly mailing. But too sexy? That is a very strange comment coming from a company that has made a reputation for itself and pushed sales growth for years based on a foundation of sex appeal.
The Victoria's Secret chain is a division of the Limited Brands Inc. (NYSE: LTD) and Turney said she wants to bring a more sophisticated image back to the product line - hmm. I wonder if this is just a smoke screen to avoid criticism by conservatives in an election year.
I can just hear the discussion in the board room: "There are some folks that think we have gone too far, and that we present an image that is just too darn sexy. All those in favor of being less sexy raise your hands"
This just does not seem possible, does it? LTD closed yesterday at $17.82 but is down over 9% in midday trading. Maybe Wall Street traders prefer more sexy, not less?
Gallery: Victoria's Secret Fashion Show 2007
UPDATE: LTD closed at $15.85 down $1.87.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of LTD.
"SEXY." The capital letters blared at me from the window of Victoria's Secret in Pioneer Place here in Portland. Next to the clean lovely windows of the Apple store, I felt I almost had to shield my eyes, to protect me from the glare. The mannequin dressed in a red bustier seemed more Elvira than Rebecca Romijn, the sweet face of Victoria's Secret when I was a loyal customer in my early 20s.
I'm not the only one turned off by the company's recent focus on sexy above all else. In rather shocking statements during this morning's Limited Brands Inc. (NYSE: LTD) analyst call, Victoria's Secret CEO Sharen Turney said the company has "gotten too much off our heritage" and was "too sexy," no longer the ideal "ultra-feminine."
With black lacquer and shocking pink decor, the "s" word thrown around like neon signs in a red-light district, and rather unsubtle displays, this isn't my mother's Victoria's Secret.
Bank of America says: "Q4 Beats on shares; Guidance implies a slow start to Q1."
LTD sells intimate apparel, personal care, women's clothes and beauty products through Limited, Limited Express, Victoria Secret & Bath & Body works. LTD reported operating income of $621 million. LTD says: "now expects February comps in the negative low double digit range verses its previous guidance for negative mid to high single digit comps."
LTD March option implied volatility of 48 is above its 26-week average of 42 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: Level 3 Communications, BT Group and Limited Brands were today's noteworthy downgrades:
Merriman downgraded shares of Level 3 Communications Inc (NASDAQ: LVLT) to Neutral from Buy, as they believe the risks outweigh the rewards until the company can complete its integration and turn FCF positive.
BT Group Plc (NYSE: BT) was downgraded to Equal Weight from Overweight at Lehman to reflect the company's slowing revenue growth.
Bear downgraded Limited Brands Inc (NYSE: LTD) to Peer Perform from Outperform, citing the unfavorable macro backdrop, execution issues and management turnover.
OTHER DOWNGRADES:
Societe Generale lowered its rating on GlaxoSmithKline Plc (NYSE: GSK) to Hold from Buy.
Morgan Stanley downgraded Cox Radio Inc (NYSE: CXR) to Equal Weight from Overweight.
With numerous retail stocks hitting multi-year lows and daily headlines about weak consumer spending, something is interesting is happening: The people who should know the most about these companies, the insiders, are buying their own stock at an unprecedented clip, reports Bloomberg.
Executives at Limited Brands (NYSE: LTD) and Dillards (NYSE: DDS) have been scooping up their own beaten-down stock. Executives at Foot Locker (NYSE: FL) and Chico's (NYSE: CHS) have also been significant buyers.
Is this a bullish signal? Perhaps. After all, it's been said that while CEOs sell their shares for all kinds of reasons, they only buy stock for one reason: they think it's going up. That's a pretty good maxim, but it can lead you astray in some cases.
Tonight could prove to be one of those rare times when men and women everywhere will not be fighting over what to watch on television as the nation tunes in to the 2007 Victoria's Secret fashion show. What will be slightly different this time around will be the importance that the show places on its Pink line, a collection of clothes aimed at the college and young teen crowd [subscription required].
Sales at Victoria's Secret have been struggling lately as a result of declining mall visitors, as well as a couple of nasty fashion mistakes at its stores. There has been one bright spot, however, the company's Pink line. The retail line includes items such as colorful underwear, pajamas, clothing and accessories, all aimed at a younger-than-traditional Victoria's Secret audience.
The retailer's parent company, Limited Brands Inc. (NYSE: LTD), has already posted a dismal 48% drop in net income for its third quarter, and has warned investors not to expect too much out of its fourth quarter results either.
Limited Brands Inc. (NYSE: LTD), which operates Victoria's Secret and Bath & Body Works, has seen a surge in insider buying. With over 400,000 shares having been purchased by insiders over the last week or so, clearly they believe the stock is trading cheap. For investors looking for a cheap retail stock, Limited may be the play. Chairman and Chief Executive Leslie Wexner bought 280,000 shares between the previous Friday and last Tuesday, his first open-market purchases in over 13 years.
With a PE of 10.25 and a PEG of 1.01, the stock looks cheap, even with lower guidance. I think that international expansion is the key. Not only international sales but outsourcing the production to places like India are sure to keep costs low. With an expected economic slowdown in Q1 and Q2 2008, this may be a play for second half '08, as the economy will rebound and bring the consumer along with it. This is the kind of stock I would rather be a bit early in than late, because once the market starts to move Limited shares will surge.
Finally, it's one thing when a company announces and/or completes a stock buyback. They could do it for a host of reasons. But when insiders dip into their own pockets to buy shares, it usually is a pretty good sign the bottom is near.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/03/07.
The Wall Street Journal [subscription required] details some fascinating research on how activities in a CEO's private life affect his or her company's profitability or stock price. The most useful idea here is that investors can use Google Inc.'s (NASDAQ: GOOG) Google Earth to spot short selling opportunities.
One aspect of this research that did not surprise me was that if the CEO builds a huge home -- greater than 10,000 square feet -- the company's stock price declines. I have long noticed that when a company builds a huge new corporate headquarters building or names a sports stadium after itself, trouble often follows for investors in its stock. The reason for this link? The CEO is more focused on personal glorification than on expanding profits.
But what I found surprising and intrusive was that deaths in a CEO's family influence company profitability, according to a study by Danish researchers of 75,000 companies there. Here's the post-event change in return on assets of various deaths in a CEO's family:
Regular BloggingStocks readers know by now that my investment strategies are fairly conservative and relatively coarse. Please don't begrudge me that. Although I don't track my picks in a portfolio, I do mentally track the general performance of the companies I tout, and I believe that overall I've done fairly well.
There are two major differences between my stock-picking efforts and what I perceive to be Warren Buffett's style. First, Mr. Buffett has years of experience that I myself do not have. Second, Mr. Buffett likes to have a greater working understanding of the nature of the businesses he chooses to investment in than I do. I choose my companies of favor with what I call my "big picture" strategy. All that means is that I use a broader view than most of my contemporaries who like to dig right down to the very roots of their picks.
I like to think that my strategy provides solid conservative support, which shall then free an investor to do some aggressive speculating with their profits.
Mega-trendy retailer Limited Brands (NYSE: LTD) announced the sale today of its Express Stores unit to private equity firm Golden Gate Capital, and in the same breath said it was evaluating the options for its Limited Stores segment -- the brand the company derives its name from. Despite the surface inscrutability of this decision (why sell the company's titular brands, the ones that are growing in gross profit while the company's other units are slipping bigtime?), it's one that analysts have been predicting for a while given that CEO Leslie Wexner has been hyping his Victoria's Secret unit as a "megabrand" upon which Limited's future prospects would hinge. Both Victoria's Secret and soap-and-lotion retailer Bath & Body Works, he insists, depend on products whose sales are more predictable than those of clothing.
While that's certainly true, it's also true that the profit margins for the cheap, trendy clothing sold by the company's Express and Limited stores are growing while the rest of the company's brands are falling. Today the company announced that it is revising its outlook for Q1 2007 downward significantly due to poorer-than-expected sales and merchandise margins at Victoria's Secret. After slashing the outlook from 25-28 cents a share to 12-14 cents a share, the stock was down significantly, $1.23 or 4.5% to $26.18, although after-market trading shows some nice recovery.
Perhaps the prediction isn't so easy, but the fact remains that the profit margins and same-store sales growth is a lot better on lemongrass- and magnolia-scented lotion than tank tops and skinny jeans. While Victoria's Secret and Bath & Body Works regularly record operating profit in the 20-30% range, a good quarter for Express and Limited stores hovers between 5% and 6%. Lingerie is sexy, and soap is way, way sexier -- and Limited Brands has picked this clean, sweet-smelling horse to ride for now.
As of February 3, 2007, Limited had 658 Express stores and 260 Limited stores; 1,326 stores in the Victoria's Secret unit (which includes the La Senza brand); and 1,546 Bath & Body Works stores.
A few years back, 
With recession fears, housing market worries and credit concerns, retailers have been facing tough times, especially during the holiday winter season of December and January when sales came with weak numbers. But on the heels of these disappointing results, retailers got a beam of hope as February's sales numbers showed a surprising increase. 
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With numerous retail stocks hitting multi-year lows and daily headlines about weak consumer spending, something is interesting is happening: The people who should know the most about these companies, the insiders, are buying their own stock at an unprecedented clip, 
Tonight could prove to be one of those rare times when men and women everywhere will not be fighting over what to watch on television as the nation tunes in to the 
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Regular BloggingStocks readers know by now that my investment strategies are fairly conservative and relatively coarse. Please don't begrudge me that. Although I don't track my picks in a portfolio, I do mentally track the general performance of the companies I tout, and I believe that overall I've done fairly well..gif){kind=logo}
Mega-trendy retailer 
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Comfort Zone Investing: Keep your recovery expectations real
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