EARNINGS : L.A. Gear Stock Tumbles 10% as Income Leaps
Sneaker maker L.A. Gear bounded to new financial heights Monday, but it didn’t leap high enough to please Wall Street.
The fast-growing Marina del Rey company, the nation’s No. 3 sneaker firm, said its earnings climbed 86% to $11.6 million on sales that soared 160% to $166.35 million in its fourth quarter ended Nov. 30. For the year, L.A. Gear’s profit was up 150% to $55.06 million on sales that rose 176% to $617.08 million.
L.A. Gear’s stock, however, fell $2.75, or 10%, to $24.625 on the New York Stock Exchange. Analysts said the company’s sales exceeded their expectations but that its earnings were mildly disappointing.
The stock market “is very unforgiving at this point, and sneaker companies tend to be very volatile issues,” said Todd M. Berko, an analyst with Drexel Burnham Lambert.
Shares of Nike, the nation’s top sneaker firm, were off $1.50 to close at $52 on Monday while shares of Reebok, the No. 2 firm, fell 37.5 cents to finish at $15.625.
L.A. Gear’s stock, the biggest gainer on the New York Stock Exchange last year, has slid since mid-November, when it hovered in the mid-$40s. L.A. Gear has been dogged by speculation that its several years of dramatic growth are coming to end, and the new earnings report apparently aroused those concerns anew.
“The market’s forecasting that they can’t keep up this pace for ever, that they’re going to stumble,” said Ted O’Glove, publisher of the Quality of Earnings Report newsletter.
Gil N. Schwartzberg, the company’s chief administrative officer, said increased advertising expenses moderated the company’s earnings increase in the fourth quarter. He said that L.A. Gear, which last year signed pop singer Michael Jackson as a commercial spokesman, aired its first network television commercials as well as its first commercials aimed at men during the quarter.
Schwartzberg said the company, which is aiming for revenue of $1 billion this year, expects the ad campaign to translate into significant gains in sales of men’s sneakers. The company traditionally has sold its trendy footwear and other apparel products mainly to teen-age girls.
L.A. Gear also said that its sales in January and February were more than double the level of a year earlier. That performance, however, wasn’t good enough for some analysts.
“The question was whether they (sales) were going to triple or not,” said John Horan, publisher of Sporting Goods Intelligence.
Separately, L.A. Gear is shortly expected to name a new chief financial officer. The new executive would fill the opening created early last month with the resignation of Elliot J. Horowitz, who quit after rejecting a contract offer that would have cut his seven-figure salary.
Horowitz’s departure, along with recent news of a government investigation into alleged underpayment of customs duties by the company, contributed to concerns raised about the firm.
