The Good, Bad and Ugly of Apparel Earnings

by Louis Navellier | March 6, 2013 4:41 pm

Earnings season is coming to an end and it’s an appropriate time to take a look at results so far in the retailing sector, along with a little peek ahead to what’s coming next and what to expect.

The Good

Shares of American Apparel (NYSE:APP[1]) gapped up 14% and kept rising after the retailer reported a turnaround profit in the fourth quarter. Net income weighed in at $4.9 million, or 4 cents per share, compared with a net loss of 11 cents per share in Q4 2011. While the company saw broad-based gains across all business segments, the real boost came from online sales, which jumped 42% year-over-year. So net sales also climbed 10% to $173.03 million. In the past two trading days, the stock has surged 31%. But with analysts forecasting 6% sales growth and nearly 26% earnings growth for 2013 (compared with the 18% industry average), I see further upside. APP is a B-rated buy.[2]

The Bad (At First Take)

American Eagle Outfitters (NYSE:AEO[3]), on the other hand, fell over 10% Wednesday after missing Q4 estimates and releasing a weaker outlook for this quarter. The company has found that mall traffic has been tapering off, so it is in the process of trimming its under performing stores. So while the company grew earnings by 58%, American Eagle’s 55 cents per share earnings just missed the consensus estimate by 2%. Meanwhile, net sales climbed 9% to $1.12 billion. Looking ahead to the first quarter, American Eagle forecasts negative mid-single digit same-store sales growth.

Even so, there is a silver lining. Shares of AEO had rallied on Tuesday, so its pullback could be chalked up to profit taking. After all, American Eagle’s 2013 prospects remain bright: Analysts still forecast 10% top-line and 63% bottom-line growth for 2013. And I must mention that American Eagle has also launched a 20 million share repurchase program and hiked up its quarterly dividend by 14% to 12.5 cents per share. So AEO is also a B-rated buy.[4]

The Ugly

But the real disappointment came from Maidenform Brands (NYSE:MFB[5]), which also gapped down nearly 10%. But there’s not a chance that this was profit taking. Maidenform, which sells intimate apparel, announced that increased competition and weak consumer trends made 2012 a “disappointing year.” Even so, the fourth-quarter results were largely positive. Compared with Q4 2011, net sales climbed 9% to $135.1 million. Analysts had forecast $133.3 million in sales, so Maidenform posted a modest sales surprise. The company also posted earnings of 24 cents per share, which topped the consensus estimate by 9%.

But what really had investors spooked was the company’s first-quarter outlook, which calls for a $20 million drop in sales and a loss in the range of 5 cents to 10 cents per share. On top of this, the company expects sales to decline 1% to 4% and earnings to fall 9% to 16%. While management alleges that 2013 will be a transition year, we won’t see a turnaround for quite some time. MFB is a D-rated sell[6].

More Apparel Earnings To Come

Looking ahead to the rest of the week, there are four more footwear and apparel companies reporting earnings:

Ticker Company Earnings Date Projected Sales Growth Projected Earnings Growth My Take
ANN[7] Ann Inc Friday 9% -90% Hold
BKE[8] Buckle Friday 6% 6% Hold
FL[9] Footlocker Friday 12% 31% Buy
ZQK[10] Quicksilver Thursday 3% 46% Hold

With the exception of Footlocker, I recommend that you “hold the phone” on these stocks.

  1. APP:
  2. APP is a B-rated buy.:
  3. AEO:
  4. AEO is also a B-rated buy.:
  5. MFB:
  6. MFB is a D-rated sell:
  7. ANN:
  8. BKE:
  9. FL:
  10. ZQK:

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