While hemming your earnings guidance can create investor doubt, snipping your forecasts to shreds can leave your stock tattered on the shop floor.
That's where women's fashion retailer Cache (Nasdaq: CACH ) found itself as it reduced the second-quarter guidance it handed out just last month from $0.20 to $0.24 per share all the way down to between $0.06 and $0.08 per share. Sales that had been expected to rise anywhere from 2%-5% from last year were now expected to drop as much as 6.5% below the year-ago period. Its shares fell more than 10% to a new 52-week low and were more than 45% below annual highs.
Apparel retailers have been having a rough go of it lately. New York & Co. (NYSE: NWY ) , bebe (Nasdaq: BEBE ) , Gap (NYSE: GPS ) , and Abercrombie & Fitch (NYSE: ANF ) are among clothing sellers that have been reporting softer sales and lower comps. Most have stock prices that reflect the disappointing results.
Cache blamed a poor response to its spring and summer fashion lines for the earnings miss. Cache targets women "who have a youthful attitude," yet their recent designs haven't appealed to this audience. As a result, the store has had to sell its merchandise at a significant discount to prevent rising inventory levels. Investors haven't viewed this as favorable, as marking down items significantly shaves profits.
New York & Co., a Motley Fool Hidden Gems pick, has stumbled in this way before. Both customers and investors can be unforgiving when you mess up, and New York saw its stock halved by repeated misses.
I think a lot of shareholders were expecting softer results for the quarter, considering the havoc a cold April has played on many retailers. Yet missing fashion trends is far more serious, and although Cache says it is realigning its inventory in response, the effects of the fall from grace can last much longer than just the current quarter.
Markdowns and discounting have become almost standard practice in women's fashion these days, which should continue to put pressure on company valuations. Even at higher analyst earnings expectations for 2008, Cache was trading at a premium to many better-performing competitors.
While the stock has fallen recently and corporate forecasts are being revised, this fashion retailer is going endure a lot more snipping of its price before it becomes a fashionable buy again.
New York & Co. is a recommendation of
Motley Fool Hidden Gems. bebe and Gap are both recommendations of Motley Fool Stock Advisor. A 30-day free trial lets you check out how it can be fashionable to beat the market.
Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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