financial
financial

Wall Street Takes Wait-and-See Approach to Retail Changes

From Wall Street's perch, major overhauls at apparel retailers and vendors have been overshadowed amid the subprime market collapse and sagging consumer...

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From Wall Street's perch, major overhauls at apparel retailers and vendors have been overshadowed amid the subprime market collapse and sagging consumer confidence.

Despite efforts to revamp businesses through managerial shifts, acquisitions and sell-offs, retail stocks have plummeted since the start of 2007. And, while the S&P Retail Index is down 3.8 percent for the year, individual retailers have seen major declines.

Initially, Wall Street reacted favorably to restructuring efforts at retailers and vendors, but its enthusiasm was short-lived. Once the hype around these deals calmed down, investors turned skeptical of the retail sector.

"With the change in control, whether through [chief executive officer] change or private equity takeover, we generally see the price react positively in the short term," said Christine Chen, retail analyst at Needham & Co. LLC. "But, for the long term, it still takes time to achieve results and for the Street to see a turnaround."

For example, the appointment of Trudy Sullivan as ceo of Talbots generated buzz after the announcement was made on June 29, which resulted in a 12 percent jump in shares. Sullivan, who previously served as president of Liz Claiborne and J. Crew, replaced Arnold Zetcher at a time when the women's apparel chain was struggling with slumping sales and costs associated with last year's acquisition of J. Jill. As Wall Street awaits Sullivan's progress, shares for the year are down 23 percent, from $23.38 on Jan. 3 to $18.06 on Thursday.

After Gap Inc. named Glenn Murphy as successor to ex-ceo Paul Pressler, Wall Street took notice. Murphy, a former executive at Canada's Shoppers Drug Mart with no prior experience in the fashion industry, was brought in to correct slumping sales.

When Gap made the announcement on July 26, shares rose 4 percent, one of the company's biggest jumps of the year. But for the year-to-date period Gap shares are down about 1.3 percent.

The same patterns hold true following sales of brands. In an effort to refocus their businesses, Liz Claiborne Inc. and Limited Brands unloaded some of their apparel lines.

Liz Claiborne agreed to sell four of its brands — Emma James, Intuitions, JH Collectibles and Tapemeasure — on Sept. 13 to Hong Kong-based sourcing company Li & Fung. The transaction, which is expected to close in the fourth quarter, includes the sale of trademarks and inventory. The company put 16 of approximately 40 of its brands up for sale as part of its larger plan to shift focus from wholesale to retail by expanding a few selected brands and dumping others.

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