After initially sending Hilfiger shares up by as much as 3 percent, Wall Street sent them back down again and they closed at $16.91, down 8 cents, in trading on the New York Stock Exchange.
Shares of Wal-Mart, also trading on the Big Board, fell 9 cents to close at $43.11.
Both companies remained mum on Monday on the news that Wal-Mart was poised to begin due diligence on Hilfiger.
Acquiring Hilfiger would fit Wal-Mart's recent merchandise strategy. The retailer's chief executive officer, H. Lee Scott, has said the company can offer varying price points, from entry level to more upscale products. Acquiring Hilfiger would turn up Wal-Mart's fashion quotient and better position the discounter against chief rival Target Corp.
While the initial talks were centered on the Tommy Hilfiger brand, the expectation is that Karl Lagerfeld would be sold if Wal-Mart goes through with a bid. Tommy Hilfiger Corp. in December acquired the Karl Lagerfeld trademarks for an undisclosed amount of cash. The deal allows Hilfiger to globally expand Lagerfeld Gallery, the women's luxury ready-to-wear collection that encompasses the Karl Lagerfeld trademark, and the Lagerfeld brand women's, men's and accessories lines, which are licensed. In addition, Hilfiger has the option of adding apparel and accessories categories, as well as opening retail stores worldwide. The transaction also includes the two Lagerfeld Gallery stores in Paris and Monaco.
While news of a possible Hilfiger bid generated surprise within the industry, it would fit in with Wal-Mart's more aggressive attitude toward the apparel sector over the last year.
The change in Wal-Mart's merchandising focus is attributed to John Fleming, chief marketing officer, sources said. Fleming was promoted to the post in April, and before that was president and ceo of walmart.com. A standout on Fleming's résumé is a 19-year stint at Target, where he was senior vice president of fashion merchandising.
Several sell-side analysts, some who spoke on the condition of anonymity because of their respective firm's policies, believe that while a designer name such as Tommy Hilfiger would elevate Wal-Mart's apparel offerings, there was at least one reservation over how Wal-Mart would position the brand in light of the discounter's reputation for being the purveyor of goods at "everyday low prices."