Analyst initiates J. Crew at 'Market Perform'Associated Press
October 2, 2008
Shares of J.Crew Group Inc. sagged Thursday, after an analyst initiated coverage of the apparel retailer with a "Market Perform" rating amid a difficult environment. Shares fell $2.06, or 7.5 percent, to $25.43. The stock has traded between $23.97 and $51.96 during the past 52 weeks.
Friedman Billings Ramsey analyst Adrienne Tennant wrote in a note late Wednesday that the economic environment will continue to weaken at the high end, which hurts retailers such as J.Crew. As consumers cut back on spending amid financial-market turmoil, rising food and gas prices and a prolonged housing slump, retailers that focus on low cost and discounts have been faring better than those sticking to higher price-points.
"We believe that the deteriorating consumer environment will next affect higher-income households, which we believe J.Crew primarily targets," Tennant wrote. Tennant added that channel checks show J.Crew has been increasing its promotional activity because of high inventory going into the third quarter.
"We believe inventory growth may continue to outpace sales trends, and this could result in margin pressure and, therefore, margin contraction in the near term," Tennant wrote. She also expects same-store sales, or sales in stores open at least one year, could slide for several quarters amid week sector-wide traffic trends. "We are cautious given the overall negative headwinds the company-and our entire specialty apparel sector-faces over the coming 12 to 18 months," Tennant wrote. She put a $25 price target on the retailer's shares.
I found the line about J.Crew increasing promotional activity interesting as it explains all those additional emails we have been receiving. (Like multiple emails announcing the same sale or all the additional emails being sent to card members.) I am curious to see how the economy's current condition will impact J.Crew in the next few months.
What are your thoughts on the article? What actions do you think J.Crew should pursue in order to maintain sales levels?
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