Mossimo Stock Falls 24% on News of Loss
Word of an impending first-quarter loss sent shares of Mossimo Inc. tumbling nearly 24% Friday on the New York Stock Exchange.
Mossimo stock fell by $2.625 a share to $8.375 after the apparel and accessories company said it will likely report a net loss of $500,000, or about 3 cents per share, for the quarter ended March 31, compared with net income of $4 million, or 28 cents per share, a year ago. First Call Inc., a Wall Street survey company, said analysts had expected Mossimo to post net income of 12 cents per share.
In addition to the anticipated loss, Mossimo said quarterly revenue would be flat at $24.5 million, compared with $24.1 million a year ago. The company also said profitability is being hurt by “significantly” increased expenses associated with an expansion into higher-end sportswear and a pretax charge of $950,000.
The one-time charge covers cost-cutting moves, which include eliminating a watch division and laying off 25 employees. Mossimo now has about 330 employees.
The quarterly loss is the latest in a string of disappointing news for investors in the activewear company, which has been gradually trying to reshape itself as an upscale sportswear company.
Shortly after the company went public early in 1996, Mossimo’s stock soared to a high of $50.125. But the stock subsequently tumbled, hitting a yearly low of $7.25 on March 20 after the company reported higher-than-anticipated costs and revenues that were lower than expected.
“This company is definitely experiencing growing pains,” said Faye Landes, an analyst with Smith Barney in New York. “But it’s important to remember that that’s not unusual in this business.”
Wall Street has responded to Mossimo’s latest disappointing news by downgrading long-term profit estimates. Merrill Lynch, which forecasts a “soft” first half for Mossimo, has lowered its recommendation to “accumulate” from “buy.”
Mossimo Chairman and Chief Executive Mossimo Giannulli linked the anticipated quarterly loss to the “complex process” of moving from activewear to more-expensive sportswear. During the past quarter, Giannulli said, the company also has experienced weakness in sales of its men’s activewear--a segment that historically has enjoyed fatter profit margins.
Mossimo Chief Financial Officer Tony Cherbak said the company is renewing efforts to make its activewear offerings more attractive. “We need to come back in that part of the business with some new products especially designed for specialty shops,” Cherbak said.
“We’re still committed to moving ahead into the higher-end sportswear business where we see substantial growth and profitability,” Cherbak said. “But as we move ahead, we will develop special products for our activewear-based specialty retail customers.”
During recent months, Mossimo has cut or scaled back a number of functions and hopes to generate “annualized savings of at least $3 million,” Cherbak said.
