Ahead of the Bell: J.Crew Group By Associated Press
November 24, 2008
J.Crew Group Inc. has been increasingly cutting prices to move inventory sitting on shelves which will likely pressure the retailer's results over the next several quarters, analysts said Monday. The New York company reports third-quarter results on Tuesday.
Needham & Co. analyst Christine Chen said she expects a "challenging holiday," due to high inventory levels, despite increased promotional activity. Retailers across the board are suffering as consumers shop mainly for necessities only amid financial-market turmoil, tight credit markets and a prolonged housing slump.
"Although clearance stores appear to be reasonably clean, we have seen the level of promotions in both the direct business and retail stores, through J.Crew's famous secret sales, continue to increase," wrote Chen, who rates the company "Buy." "We suspect J. Crew still has too much Summer/Fall inventory, which has resulted in higher markdowns in order to make room for new Holiday floorsets." She lowered her estimates for the third and fourth quarter as well as 2008 and 2009 to reflect a continuing difficult environment and cut her price target to $15 from $32.
Meanwhile, Brean Murray, Carret & Co. analyst Eric Beder said in a note to investors Monday that he is also concerned about inventory levels, and doesn't expect improvement until the second half of 2009. "With the stores remaining heavily discounted, investors have now put J.Crew, in our opinion, correctly on the clearance rack," Beder wrote. "The discounts have kept coming, from higher sales on clearance items, to more and more e-coupons and inventories bulging at the store level."
However, he raised his rating on the company to "Hold" from "Sell" due to the decline in the stock's value. Since the beginning of the year, J.Crew shares have fallen 81 percent. "We believe the drop in J.Crew shares now reflects the potential for a material miss tomorrow when the company announces third-quarter results," he wrote.
I appreciate hearing the views of the two analysts in this piece (especially since one recommends to "hold" while the other recommends to "buy".) It is clear that J.Crew has been doing a lot of promotions lately and that is impacting them.
As mentioned in an earlier post (click here), J.Crew is having a conference call tomorrow to review "third quarter fiscal 2008 financial results." It will be interesting to find out how top executives address the concerns mentioned in this article.
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