Why Lumber Liquidators Got Chopped and American Apparel Popped

The blue chips sank on news out of Portugal, while Lumber Liquidators brought down the home-improvement sector. Meanwhile, American Apparel soared on a plan to overhaul its leadership.

Jul 10, 2014 at 10:00PM

Major indexes opened the day sharply lower on concerns about Portugal's largest bank, but gained throughout today to finish down only moderately. The Dow Jones Industrial Average (DJINDICES:^DJI) closed 71 points lower, or 0.4%, as the S&P 500 also fell 0.4%, and the Nasdaq lost 0.5%.


Meanwhile, most indexes in Europe fell more than 1%, with Portugal's PSI sinking 4.2% as Espirito Santo Financial Group, the biggest shareholder in Portugal's largest bank, suspended trading of its stocks and bonds due to "material difficulties" at its parent company, which had missed some debt payments. It's been a while since concerns about European defaults last rocked global markets, but many smaller eurozone economies are still struggling to maintain positive growth. Government officials stood by the bank, which said it missed payments to a just "a few clients," but investors fear that the news could be a sign of more problems to come.

Back at home, initial unemployment claims last week fell from 315,000 to 304,000, lower than estimates of 311,000, indicating that strong job growth seems to be continuing into July after last week's official report showed that nearly 300,000 jobs were created in June. Continuing unemployment claims for the week ending June 28 rose slightly to 2.584 million, but still remained near post-recession lows as the four-week moving average hit its lowest point since October 2007.

Home-improvement retailers dropped today after Lumber Liquidators (NYSE:LL) said its second-quarter results would be much weaker than expected, blaming lower existing home sales and internal operational issues for the drop in profits. Comparable sales fell 7.1% after jumping 14% a year earlier, as customer traffic fell sharply and worsened throughout the quarter. Shares of the hardwood flooring retailer fell 21%, and brought down peers including Tile Shop Holdings, which dropped 9%, Home Depot, down 1.7%, and Lowe's, which lost 1.4%.

Elsewhere, American Apparel (NYSEMKT:APP) shares popped 21% in late afternoon trading, and continued to gain after hours as the hedge fund Standard General took a stake in the struggling clothing retailer. Standard General will inject $25 million into American Apparel, and ousted CEO Dov Charney agreed to become a strategic consultant as a result of the agreement.

Shares of American Apparel, which makes casual clothes for teens and young adults, have fluctuated wildly since Charney was pushed out of the leadership role for personal misconduct just weeks ago. Among other possibilities, Charney had considered taking the company private, though today's development seems to remove that outcome. As part of the deal, five of the board's seven directors will also step down, and Standard General will nominate three new ones. American Apparel has not seen a profit since 2009, but a change in leadership could help lead a turnaround for the respected brand. An investigation into Charney's misconduct, which revolves around his knowing of an employee's plan to publish nude photos of a co-worker, is ongoing, and Charney's status with the company will be decided after its conclusion.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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