St. John Knits’ Stock Plunges on Profit Warning
St. John Knits Inc.’s stock price plunged 30% on Wednesday after the high-end women’s clothing company announced that it expects to report disappointing third-quarter earnings and is still plagued by production woes.
The stock’s free fall was the Irvine company’s biggest one-day drubbing ever and made St. John--long considered a winner in women’s clothing departments--the fourth-biggest percentage loser Wednesday in the U.S. markets.
The stock fell $8 to a 52-week low of $18.50 in heavy trading on the New York Stock Exchange. More than 2 million shares changed hands, compared with the average daily volume of 142,000 over the last three months.
Chief Executive Bob Gray said the company is still working to resolve production problems that have dogged St. John since early this year, when executives found flawed clothing in retail stores and retrieved the merchandise for repairs.
Even within the last week, Gray said, the company has had to recall fur-collared suits that were sewn from a faulty pattern and did not fit well.
The knit suits “were manufactured OK, but the pattern was bad,” he said.
At the heart of the problem Gray said, was the company’s attempt to expand sales too quickly without enough workers to make the clothes. The company’s boutiques also overestimated demand for the merchandise, creating excess inventory that resulted in price markdowns.
Employees worked overtime to meet production demands, which heightened the potential for errors and ate into the company’s profit. St. John’s overtime costs surged by $750,000 during the quarter ended July 31. The company is hiring more workers, as well as moving to eliminate a shortage of sewing machines, he said.
The stock market sell-off shaved $25.2 million off the combined value of the holdings of Gray, his wife, Marie, and daughter, Kelly, who is the company’s president. By Wednesday’s close, their 17.6% stake was worth $55.9 million.
But Gray said he still feels “very satisfied” with the company’s overall performance. The company said its same-store sales--an important industry indicator--were up 21% from the third quarter last year. And overall sales climbed 24% to $67.7 million from $54.8 million a year ago.
“Unless I’m mistaken, we’re still one of the most successful, profitable companies in the apparel field,” he said, “and probably in the top tier of all industries.”
With the stock at what Gray called an “unrealistic low,” St. John’s directors approved a plan Wednesday to repurchase up to 1 million shares of common stock.
But some analysts said they still have reservations about the company’s efforts to right itself.
Holly L. Guthrie, an analyst with Janney Montgomery Scott Inc. in Philadelphia, said she is not confident that the company has pinpointed its problems and taken steps to fix them. She declined to comment on the falling stock price.
Late Tuesday, St. John disclosed that the company’s earnings would not meet analysts’ expectations for the second consecutive quarter.
The company said it expects to report earnings of about 43 cents a share for the three months, up only slightly from 42 cents a year ago.
