In a Prudential Financial report by Lizabeth Dunn issued Monday, the investment firm downgraded Nautica to “sell” from “hold,” maintaining its $11 price target because of its belief that Nautica’s share valuation is extended.
“We think a sale is unlikely and believe Nautica shares are now fully reflecting an acquisition. Also, while management has strategies to turn the business around, we think progress will take time and without an acquisition, the shares are reflecting most of the upside for strategic initiatives. While we do believe management is doing its job and things should get better over time, the strategies for fixing the business are far from in the bag and we are hesitant to include much upside in our estimates,” she wrote.
As for VF’s financial health, this spring the corporation said it was affected by a tough retailing environment exacerbated by the Iraqi war, unseasonably cool weather and inventory reductions taken by VF’s retail customers. Discussing the downward revision in its second-quarter earnings expectations last week, Robert Shearer, VF’s chief financial officer, told analysts, “Our brand sell-throughs at retail are as strong as, if not stronger than, our competitors. Generally, we believe that we’re holding or gaining share in our key categories, jeanswear and intimates, as well as other areas of our business such as outdoors. So while in some cases our shipments to retailers are down, our sell-throughs at retail are positive. Again, this is the result of the aggressive inventory reduction actions taking place at retail.”