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.

Shares of the company trended up following the announcement, but dropped off on Thursday to close at $32.12, down 27 percent for the year.

Limited Brands Inc. is turning its attention to its beauty and intimate apparel divisions after transferring a majority of its stake in its Limited women's clothing chain on July 9. The company sold 75 percent of its stake in Limited Stores to Sun Capital Partners in exchange for a $50 million investment in Limited Stores and a $75 million credit line. Previously, the company sold a majority of its stake in Express to Golden Gate Capital for $602 million.

In recent years, sales at Limited Brands' clothing stores have been weak, and its main sources of growth have been the Victoria's Secret and Bath & Body Works chains.

Shares slipped 2 percent on the announcement and have continued trading down. For the year-to-date period, Limited Brands' stock has fallen 26 percent, closing at $21.96 on Thursday, from $29.58 on Jan. 3.

Maternity apparel retailer Mothers Work Inc. said on Sept. 28 that it would not renew its leasing deal with Sears Holdings Corp. The company said it was unable to reach renewal terms that were beneficial to the company or shareholders. Mothers Work held leases in the maternity department of 502 Sears stores.

Since the announcement, company shares dropped and continue to trade down 59 percent year-to-date.

After Jones Apparel Group completed the sale of Barneys New York, shares of the company dropped and Standard & Poor's cut its rating. S&P said Jones' portfolio has weakened since the sale. As of Thursday, shares for the year are down 37 percent to $20.71, from $33.12 on Jan. 3.

On Sept. 19 Kellwood Co. received an offer from Sun Capital Securities to buy the company for $543.9 million, which sent shares soaring 26 percent from $15.17 to $19.14.

The private investment firm offered $21 a share for the company, a 38 percent premium from the closing price on Sept. 18. In July, Kellwood announced a major restructuring program to cut costs and focus on consumer lifestyle brands. While shares have buoyed from their 52-week low of $14.21, they are still down 44 percent for the year.

The only companies that have seen market growth since announcing major corporate changes have been Genesco Inc., Deb Shops Inc. and AnnTaylor Stores Corp.

Concerned about the financial health of the company, Genesco's shareholders approved a $1.5 billion buyout by Finish Line on Sept. 17. Shares jumped 2.4 percent on the announcement, and for the year are up 27 percent, closing at $47.40 on Thursday.

Teen retailer Deb Shops reported on July 27 that Lee Equity Partners will acquire the company for $395 million in cash. While shares of Deb Shops fell 17 cents after the announcement, the company is trading up 3.4 percent for the year-to-date period.

Baby Boomer retailer Ann Taylor recently revealed its new concept, an upscale women's clothing line, and appointed Mark Mendelson to run the division. When Mendelson was appointed on Aug. 13 shares closed up 2 percent to $28.25. For the year-to-date period, Ann Taylor has seen a 9.4 percent increase, closing on Thursday at $35.82.

"There was a reason these companies sought changes in management, or decided to sell the company or some of its line, and in general, it was because the retailers were not performing," Chen said. "And if you look at the ones who are up for the year, I would guess that it's because they have been able to turn sales around."

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