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Stock Watch / John Charles Tighe

Losses Coming Into Style at Clothestime

November 22, 1987|JOHN CHARLES TIGHE

While hemlines have risen, profits and share prices have fallen to the floor for Clothestime, the Anaheim-based discount apparel retailer.

After 22 consecutive quarters of earnings increases, Clothestime is expected by several industry analysts to report that it lost money in its 1987 fiscal third quarter, which ended Oct. 31. The company's earnings announcement is due Monday.

Thomas Tashjian, a retail analyst at the Los Angeles brokerage firm of Seidler Amdec Securities, said the loss might be as much as $700,000, or 5 cents per share, contrasted with net income of $3.5 million, or 28 cents per share, for the same period last year.

"A nickel, 3 cents, a dime; it doesn't much matter what they lose. . . . The point is, they're losing money," said Stewart Spector, an apparel store analyst at Furman Selz Mager Dietz & Birney, a New York-based investment banking firm.

Clothestime, which operates 338 discount clothing stores across the country, announced last month that it expected its third-quarter earnings to be down. But the investment community was already anticipating the decline.

The market value of Clothestime and several other specialty retailers began to collapse in early fall when it appeared that store sales were slowing. By Friday, Clothestime stock had fallen 77% from its 12-month high of $24 per share, closing at $5.50 per share, down 75 cents for the week.

Such specialty retailers as Clothestime are especially sensitive to even small changes in consumer buying patterns because they serve limited markets, making it difficult to change their product mix to maintain sales.

While the shares of major specialty chains have lost 30% to 65% of their value in recent months, few have suffered as severely as Clothestime.

The inverse relationship between hemlines and Clothestime's share value is more than mere coincidence, said Elizabeth Armstrong, a retail analyst at Johnson Redbook Service, a New York-based institutional broker.

During this year's back-to-school season, Clothestime's predominantly young female market wanted shorter skirts, but the company's shelves were stocked with a longer look.

Instead of scissoring its skirts, the company cut clothing prices to clear out its slow-selling inventory and to free shelf space for hotter items.

The company's policy of reacting to trends rather than setting them has traditionally allowed it to buy merchandise at bargain prices, analysts said, but it apparently proved disastrous in the third quarter.

Clothestime officials have not discussed the sales problems, and president Norman Abramson did not return phone calls last week.

Armstrong noted that industrywide increases in clothing prices--which contributed to Clothestime's third-quarter troubles--could constrain future sales.

"At Clothestime, shoppers want to enjoy buying," she said. "With the cost of clothes going up, it's not fun to buy, so they're not buying."

Tashjian said the company has been buying merchandise recently at "opportunistic prices," which could improve future profit margins.

Still, Tashjian projects earnings of only $8.4 million this year and $11.2 million in 1988. Both estimates are below the $11.9 million earned last year. As a result, he doesn't expect the company's stock to rebound anytime soon.

"They've got a lot of stuff to get through before they have good news," he said.

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