It hasn’t been a good couple of weeks for several local retail and apparel companies, as jittery investors pounced on disappointing news in third-quarter earnings reports and hammered their stocks.
L.A.-based Tarrant Apparel Group cut its full-year outlook, and its shares dived nearly 39 percent. Manhattan Beach-based footwear maker Skechers USA Inc. was dinged 22 percent after announcing lower fourth-quarter guidance. Westlake Village-based musical instrument retailer Guitar Center Inc. saw its shares fall 17 percent after missing analyst estimates by a penny.
With the exception of Tarrant, stocks rebounded following the short-lived plunge, although they still were off from pre-earnings report levels. Skechers hit a low of $12 a share on Oct. 27, but climbed back to $13 the next day. The stock was trading as high as $16.25 on Oct. 26.
Richard Giss, a partner at Deloitte & Touche LLP’s Los Angeles office, called the share movement a reflex reaction. “The market is really quick to punish,” he said. “Growth and revenue is so important in the evaluations of these companies.”
He added that investor concerns go beyond company fundamentals. Among the worries: The Conference Board’s consumer confidence index hitting a two-year low, still-high gas prices and mounting fears that real estate prices will fall. “People feel a little less confident,” Giss said.
In its report, Skechers warned that it expects fourth-quarter earnings of 2 cents to 7 cents per share, below analyst estimates of 6 cents per share. The company said that historically its first three quarters are stronger than its fourth. (For the third quarter, the company met analysts’ estimates.)
Despite the lowered fourth-quarter guidance, Vera Van Ert, an analyst with Wedbush Securities Inc., retained a “buy” rating for Skechers. In a research note, she said that the company saw solid retail and wholesale sales growth in the third quarter.
“The company continues to see strength from its Skechers men’s, women’s and children’s lines and its new fashion brands,” she said.
Similarly, analysts maintained that Guitar Center’s principal sales vehicles its stores remained healthy, even if its third-quarter per-share results missed estimates by a penny. Revenues came in nearly 2 percent under analyst estimates.
Guitar Center’s third-quarter weakness was blamed on the company’s Musician’s Friend direct response music unit, which showed a slight dip in gross margins. The company attributed the dip to reduced shipping and handling revenue as a result of growing competition.
Still, Mitchell Kaiser, an analyst at Piper Jaffray & Co., kept an “outperform” rating for Guitar Center.
“We believe Guitar Center has buying efficiencies relative to its smaller competitors and can play the pricing/free shipping game longer than the competitors,” he wrote in a research note.
Guitar Center shares were trading in the $50 range last week after hitting a recent low of $47.86 on Oct. 27. Shares had been trading as high as $62.45 on Oct. 25.
Tarrant’s stock fell, the result of new denim brands flooding the market. Kmart Corp. discontinued one of its jeans brands, called Gear 7.
The company said it now expects full-year net income of $1 million to $2 million, down from an earlier forecast of $9 million to $12 million. On the news, Tarrant’s shares fell to a low of 86 cents last Tuesday, down from $3.24 in early October.
Shares of Los Angeles-based restaurant chain California Pizza Kitchen Inc. saw limited disturbance from earnings news. The company said it expects fourth-quarter net income of 30 cents to 31 cents per share, just under analyst projections. For the third-quarter, the company’s net income rose to $5.5 million from $2.5 million in the like period a year ago.
Building Architects
Callison Architecture Inc., a Seattle-based mixed use and retail specialist that’s done extensive work for local companies Skechers and Guess Inc., is beefing up its Southern California presence.
The company plans to nearly double the number of employees at its Santa Monica office, which now has a staff of about 15. Callison opened the local office in July after branching out to New York and Shanghai.
Stan Laegreid, a principal at Callison, said the local operations help Callison reach out to its international clientele. The company has ongoing projects in Asia and the Middle East. “Los Angeles is a gateway city,” he explained.
In Southern California, Callison was involved in giving the Beverly Center a more sophisticated look and transforming vacated space at South Coast Plaza. The company is working on 450,000 square feet of retail and 1,300 hotel and timeshare units at the Anaheim GardenWalk.
Denim Doings
Blue Holdings Inc., a Commerce-based denim company, has bought Taverniti So Jeans LLC for $750,000 and 500,000 new shares of stock.
The transaction is the latest orchestrated by Paul Guez, chief executive of Blue Holdings, to incorporate brands under the Blue Holdings umbrella. Blue Holdings expects that Taverniti So Jeans will contribute in excess of $10 million in revenue in 2006.
Guez owned a controlling stake in Taverniti So Jeans even before Blue Holdings bought the brand. It had been included in the brand names that another Guez-headed denim company, called Blue Concept LLC, controls.
Prior to this deal, Blue Holdings, known for the Antik denim brand, entered into a license agreement with denim brand Yanuk Jeans LLC, another brand that was controlled by Blue Concept. That agreement made Blue Holdings the exclusive licensee for Yanuk to design, make and sell Yanuk products.
Sweet News
Los Angeles-based Health Sciences Group Inc.’s new calorie-free sugar substitute Shugr is finding its way onto brick-and-mortar and virtual shop shelves.
Health Sciences recently inked a deal to sell the substitute on the pharmacy Web site drugstore.com. The company estimated Bellevue, Wash.-based drugstore.com inc. will open Shugr up to nearly three million customers.
“We expect to see Shugr sold in more national grocery and national retail chains by year-end,” Health Sciences’ Chief Executive Fred Tannous said in a statement.
Staff reporter Rachel Brown can be reached at (323) 549-5225, ext. 224, or by e-mail at
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