The unexpected downdraft in the first days of the holiday shopping season hit some local retailers and apparel makers, while others appeared to be holding up fairly well.
Denim clothing manufacturer Guess Inc. reported weak sales heading into the crucial Christmas season, as did mall retailer Hot Topic Inc., and both companies saw their stocks drop.
However, K-Swiss Inc., Cherokee Inc., and Quiksilver Inc., seemed to be bucking the trend with stocks hitting or reaching new 52-week highs.
“There are plenty of shining stars in the retail sector but there are different reasons why some are doing better than others,” said Jim D’Aquila, managing director of Mercanti Group LLC, a boutique merchant bank in Los Angeles and Minneapolis.
This year’s holiday season is also suffering in comparison with last year, when consumer spending got a shot in the arm from a second mortgage refinancing boom and President Bush’s $350 billion tax relief package. “It’s not that this is a bad year,” said D’Aquila. “It’s that last year, people spent their way through a recession and now, without the tax cut and refinancing stimulus, consumers have slowed down.”
Wal-Mart Stores Inc. set the stage for a slowdown by projecting a paltry 0.7 percent increase in November same-store sales, lower than earlier forecasts. The Bentonville, Ark.-based retail giant said its strategy of fewer promotions and discounts early in the season had backfired, even though it may ultimately bolster profit margins.
Analysts think the mixed bag for retailers this Christmas will ultimately benefit bargain-hunting consumers who wait until the last minute to shop for their goods.
Though shoppers came out in full force on “Black Friday,” the big shopping day after Thanksgiving, sales dropped off precipitously in the following two days. The three-day weekend ended with a modest 2.9 percent overall sales increase, according to ShopperTrak, which tallies sales at 30,000 retail outlets nationwide.
Analysts are pointing to various economic factors to explain the disappointing early holiday sales including slower growth in disposable income, the high cost of crude oil and a cooling off of the economy.
Locally, a few retailers got hit while others are firing on all cylinders.
Last week, Guess reported a weaker-than-expected same-store sales increase of 0.5 percent in November, prompting the company to slash its fourth quarter earnings outlook. Analysts had been looking for a 4 percent increase in same-store sales.
Guess said expenses are expected to rise in the fourth quarter to support heavy promotions aimed at driving more customers into its stores. Shares of Guess fell 9.5 percent to $13.56 a share.
Shares of Hot Topic, which sells music, T-shirts and pop-culture items, got burned last week after announcing same-store sales in November had plunged 8 percent. The company slashed its fourth-quarter earnings guidance, which prompted two brokerage firms to downgrade its stock.
Wedbush Morgan Securities analyst Adrienne Tennant downgraded Hot Topic to “hold” from “buy” and cut its price target to $18 from $23. Hot Topic has plunged 25 percent in the past month to $16.20.
But shares of K-Swiss, the sports shoemaker in Westlake Village; Cherokee, a Van Nuys licensor of Cherokee and Sideout brands to Mervyn’s and Target department stores; and Quiksilver Inc., a Huntington Beach teen apparel maker; all hit or came near new 52-week highs.
K-Swiss reported a 37 percent jump in third-quarter profits, which helped its shares take off. The stock was trading Dec. 2 at $28.27, up 17.7 percent year to date.
Cherokee, which licenses its brands to Target Corp., benefited from the relatively strong performance of that mass merchant retailer. Its stock has risen 48.1 percent this year. And Quiksilver, near a 52-week high at $30.78 on Dec. 2, is benefiting from strong growth in Britain and Europe.
