ClothesTime Reports Sales Upturn : News Follows Sale of Large Block of Stock by Key Insiders

Though the sale early last week of a large block of ClothesTime Inc. stock by key insiders could be taken as a bearish indicator, a strong upturn in August sales may be a signal that better times are ahead for the Anaheim clothing retailer.

ClothesTime, which is traded over the counter, was NASDAQ’s second-most active issue Tuesday, with just over 1.25-million shares traded. That was the same day that Michael, Raymond and August DeAngelo, respectively ClothesTime’s chairman, vice chairman and corporate secretary, and John Ortega II, a company vice chairman, sold 500,000 shares in a single transaction.

Norman Abramson, ClothesTime’s chief operating officer and acting chief financial officer, said the 500,000 shares were sold by the insiders because they needed the cash to pay for a recent real estate transaction.

Fred Windtzer, an analyst with Baltimore-based Alex Brown Partners, which bought the stock at $14 a share and in turn resold it to other clients, said in a telephone interview that the sale probably shouldn’t be taken as a signal of pending bad news for ClothesTime.

“The street has known that these guys wanted to sell their stock for a long time,” Windtzer said. “If there is something happening at ClothesTime that we don’t know about, then they are going to get into trouble. But I personally don’t think so.”

Instead, Windtzer said, changes in the federal tax laws affecting capital gains probably prompted the sale, which he believes the insiders put off until now in the hope that the stock would recover some of its recent losses, caused largely by the overall weakness of retail stocks.

Volatile Issue

An especially volatile issue--its price-to-earnings ratio has ranged from a low of 19 to a high of 26 over the last year--ClothesTime frequently has been hammered when news from the company didn’t square with what the street was expecting.

Last May, for example, the company told analysts that its first-quarter sales would be up 13% compared with last year. But because the analysts incorrectly had predicted a 25% sales increase, the stock fell in heavy trading, prompting ClothesTime to question whether reporting sales projections was such a good idea.

ClothesTime had soared to $38.75 a share in April before a 2-for-1 split and the sell-off that followed news in May of the 13% sales gain. It fell to $18.25 a share immediately after those two events, and while it has traded for as much as $21.75 a share in the months following the split, ClothesTime shares generally have drifted down to the current trading range of $14 to $15 a share. On Friday, ClothesTime closed at $14.75 a share, up 50 cents for the week.

“I don’t see it moving down from here, but we’re going to have to see some good numbers before people get their confidence back in the specialty retailers,” said Michelle Davis, an analyst with Oppenheimer & Co. She noted that specialty retailers have not recovered as readily as other issues from July’s steep drop in the Dow Jones industrial average.

Some of ClothesTime’s sluggishness can be traced to an expansion that has outstripped the increase in sales and to an ill-fated policy earlier this year of raising prices to improve profit margins. When prices rose, sales fell, leading company officials to return to their old policy of aggressive discounting.

Increase in Sales

So far, that policy seems to be working. In August, total sales increased 36% from August, 1985. Last month’s sales increase also represented a big improvement over July’s year-to-year sales increase of only 20.7%.

Moreover, because ClothesTime has been able to take advantage of late-season buying and a glut of new clothing on the market, the company has been able to buy cheaply, pass the savings onto its customers and increase its profit margin. Davis said ClothesTime’s 48% profit margin is well above the industry average.

Although it will take additional good news for her to restore ClothesTime to her list of recommended stocks, Davis said that “assuming everything goes hunky-dory, you could see a 50% increase (in the stock price), which isn’t bad.”

On the other hand, Windtzer of Alex Brown is a little more bullish.

“Right now, retail stocks are in the tank,” he said.

But, over the next year, he said, they should recover, and when they do, ClothesTime should move into the $25-to-$30-a-share range, giving current investors a shot at doubling their money.