Gap, Talbots and A&F clear up inventories via discountsMonday, 31 October 2011
October is typically a clearance and markdown-driven month as retailers clear through excess early-fall inventory in preparation for pre-holiday selling, point out from Janney Capital Markets. Clearance inventory generally looks appropriate and relatively clean for this time of the season. As published by Barron’s, “without another major "event" to drive sales until Black Friday, we believe that retailers will have to continue to aggressively promote to drive sales. Thus far in October, including the Columbus Day weekend, our reads are that business has softened materially from September.”
The analysts from the capital market research firm Janus Capital Markets shared and highlighted their concerns about clothing retailers. Following are some highlights from its report:
Gap is clearing out its inventory in advance of the holiday season, marking down clothes by 50% in some cases. Strategy of growing international and online sales continues, with new stores opening in China, Poland and Russia in recent months. The company’s bet on strong sales in this area comes against the backdrop of consistently weak sales overseas for the past year. “Now that cotton prices are lower, that will bode well for the company. Management knows full well the extent of the company’s malaise,” conclude analysts from Trefis. As CFO Sabrina Williams said at the annual investor meeting in mid-October, “Management is disappointed in our 2011 financial performance.” Glenn K. Murphy, chairman and CEO, also admitted at that meeting that he “allowed the cotton crisis to become a distraction inside the business. That’s my fault.”
Talbots is also clearing out its inventory, with discounts of up to 30%. As reported at Financial News Network, Talbots has potential upside of 15.8% based on a current price of $2.51 and analysts' consensus price target of $2.91. The stock should find initial resistance at its 50-day moving average (MA) of $2.73 and further resistance at its 200-day MA of $4.30. In the past 52 weeks, shares of Talbots have traded between a low of $2.25 and a high of $11.84 and are now at $2.51, which is 12% above that low price.
Abercrombie & Fitch’s inventory levels are rather low in advance of the holiday season, suggesting that October sales at stores open for more than a year will be low as compared to prior years. The analysts also speculate that Abercrombie & Fitch has been successful in taking market share from Aerpostale and American Eagle Outfitters. “Abercrombie's inventory levels domestically looked excessively clean and this may impact their ability to drive comparable-store sales during October. Over the weekend, we noted exceptionally clean levels of inventory across all Abercrombie concepts with stockouts in many styles and sizes. The light inventory was particularly noticeable at the Kids and Adult divisions, and even the Hollister division looked very light on both full price and clearance inventory levels.We believe this could impact the company's ability to comp strongly domestically, but that margins should be improved,” advanced from Janney Capital Markets