Mossimo Stock Dives on Report : Lower Earnings Shave 17% Off Irvine Clothier’s Shares
Mossimo Inc.'s stock tumbled 17% on Monday after the high-flying company disclosed that third-quarter earnings would be dragged down by unexpectedly high production costs for new sportswear lines.
It was the second session in a row that the Irvine-based apparel company’s stock had slipped in New York Stock Exchange trading. On Friday, Mossimo’s shares fell 11% after a New York-based industry analyst downgraded her investment opinion.
Mossimo plunged by $13.625 in early trading on Monday before rebounding to close down $7 at $34. Nearly 4 million shares changed hands, much more than the company’s normal trading volume.
Mossimo sparked the slide Monday by announcing before the market opened that earnings for the quarter ending Sept. 30 would fall 10 cents per share below the 24 to 26 cents that analysts had expected.
“This is definitely a disappointment,” said Brenda J. Gall, an industry analyst in New York with Merrill Lynch. “I still hold my long-term buy recommendation because I believe in the company. But when I saw their prediction, I knew [the stock] was going to take a hit.”
Industry observers tied Mossimo’s roller-coaster ride during the past few days to heightened expectations among investors who are demanding stellar performance from apparel stocks. Mossimo’s stock had been trading at a premium since making its initial public offering at $18 in February, Gall said. “But this was the first time they slipped.”
Several Orange County-based apparel companies have seen their stocks tumble when earnings fail to hit analysts’ expectations. For example, Quiksilver continues to be profitable but its stock has sunk to about $25 after hitting a 52-week high of $47.375 in May.
Mossimo’s founder and chairman, Mossimo Giannulli, described the disappointing earnings report as “a very insignificant thing in the long run. Business is really phenomenal . . . our [revenue] growth is where we want it to be and the label has never been stronger.”
Giannulli blamed the earnings dip on high production costs associated with Mossimo’s new lines of men’s and women’s clothing and changes in the company’s overseas manufacturers.
He also acknowledged that fourth-quarter earnings would be stalled by production expenses--"but to a lesser extent than in the third quarter.”
The stock’s slide on Monday came on the heels of a $5.125 drop on Friday that had left Mossimo’s shares at $41.
Giannulli linked Friday’s slide to a New York-based industry analyst’s decision to downgrade the company. The timing of Friday’s report by Janet Kloppenburg at Robertson, Stephens & Co. was “a fluke,” according to Giannulli.
“Robertson, Stephens downgraded us on Friday because they thought we were a bit too pricey,” Giannulli said. “But Robertson had absolutely no information from us on [Monday’s] announcement.”
Kloppenburg, who wasn’t available for comment on Monday, downgraded Mossimo to “long-term attractive” from “buy.”
But some industry observers said they doubted one analyst’s report would be a strong enough force to push Mossimo’s share price down by 11% in one day.
“It always concerns you when a stock trades three times normal volume the day before an announcement,” said Bill Chenoweth, portfolio manager at the Turner Small Cap Fund, which held 36,300 Mossimo shares at the end of June. “Somebody knew something on Friday.”
Securities and Exchange Commission spokesman Paul Gerlach said he wasn’t able to discuss whether any investigation was underway.
Times wire services contributed to this report.
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Mossimo Inc.'s stock opening was delayed Monday so the company could announce that third-quarter earnings will be below analysts’ expectations. Weekly closing prices:
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Hourly prices (EDT) Monday on the New York Stock Exchange:
Source: Bloomberg Business News;
Researched by JANICE L. JONES / Los Angeles Times