Top Prices Are Short-Lived as Apparel Stocks Shrink in Value
Just a month ago, executives at several local apparel and retail companies watched gleefully as their publicly traded stocks soared to new heights.
Led by Quiksilver Inc., which rolled to a 52-week high of $47 on May 23, the apparel and retail stocks were basking in the kind of market frenzy that investors typically reserve for high-tech companies.
But the celebrations were short-lived: The stocks, for the most part, began slipping in June. On Friday, apparel and retail executives, along with the rest of the market, again learned that healthy earnings reports alone aren’t always enough to fend off overall market forces.
Market watchers attributed Friday’s fall--the Dow Jones industrial average dropped 118.58 points to 5,599.96--to a surprisingly strong report on the nation’s job market.
But retail and apparel industry experts said Friday’s fall was yet another example of the market’s knee-jerk reaction to real or imagined news.
“The stock market is so over-inflated and heated up that you don’t need earnings or strong same-store sales to titillate the investment community,” said Alan Milstein, editor of Fashion Network Report.
Quiksilver, a Costa Mesa-based surf apparel company, saw its stock plummet from its high in May to $30 a share earlier this week and then sink further Friday to $28.75. Likewise, shares of Wet Seal, Pacific Sunwear of California and Vans, all of which also hit 52-week highs before falling back during June, dropped further on Friday.
Fashion industry analysts link the apparel and retail stocks’ recent highs and the subsequent retreats to the same kind of inflated expectations that cause high-tech stocks to jump and dive with little or no apparent reason. They also said that greed is an equally powerful force.
“The apparel sector has been in the doldrums for so long that the slightest uptick in consumer spending leads to euphoria among investors,” said Ira Kalish, a Los Angeles-based retail economist with Management Horizons, the retail consulting arm of Price Waterhouse LLP.
But in the super-heated market, observers said, good news often isn’t enough when investors are demanding great news.
That’s apparently what happened to Quiksilver’s stock, which fell from its 52-week stock high in early June after executives said that quarterly revenue would only rise by 15%--not the anticipated 20%.
One analyst downgraded Quiksilver stock from “buy” to “hold” because investors have “built in expectations much higher than this based on the company’s ability to outperform analysts’ estimates.”
Kalish says that smart retail and clothing company executives know that they must craft strategic plans to help insulate their stocks from future market shifts.
“It’s not enough to be relying upon a temporary blip in consumer buying,” Kalish said, adding that stock prices will be driven by whether the summertime romance with investors will be strengthened by strong back-to-school and holiday shopping seasons.
Milstein points out that savvy retail and apparel companies are cutting costs and positioning their companies to share in an apparent consumer spending upsurge.
Executives at local companies maintain that they’re well-positioned for future growth, in part because they’re no longer being forced to compete against going-out-of-business sales staged by troubled competitors who have closed thousands of poorly performing stores in the past year.
And they maintain that they’re keeping in tune with consumer fashion demands without losing sight of the bottom line.
“Our stock has been pumped up recently,” acknowledged Pacific Sunwear President Greg Weaver. “But we think we’ve got a strong program going. Sales are up, profits are up and so are our same-store sales. And we see nothing hovering over our heads that would dampen our enthusiasm.”
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Apparel Ups and Downs
Stock prices for many Orange County apparel firms hit their 52-week highs recently, but had been sliding before Friday’s big drop. The 52-week high and Friday’s closing price:
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52-week high Friday’s Close Date close Mossimo $50.13 6/3/96 $38.63 Oakley 54.38 5/24/96 41.00 Pacific Sunwear 26.25 5/29/96 22.25 Quiksilver 47.38 5/23/96 28.75 St. John Knits 48.50 7/2/95 45.75 Vans 20.63 5/21/96 14.63 Wet Seal 27.25 5/28/96 24.50
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Source: Dow Jones Information Service; researched by JANICE L. JONES / Los Angeles Times
