Charlotte Russe downgraded to "neutral"
The investment gurus have been warning about it all summer and now it’s finally beginning to rear its ugly head. Retailers are starting to show signs of flailing and Charlotte Russe Holding, Inc. (Nasdaq: CHIC) is no exception. The fashion retailer was downgraded today to “neutral” from “outperform” by JP Morgan.
After disappointing results last night from Charlotte Russe’s largest competitor, The Wet Seal, Inc. (Nasdaq: WTSLA), warmer weather and underperforming sales at Charlotte Russe’s California and Florida-based stores, JP Morgan analyst Anna Andreeva said she perceives that September comps for Charlotte Russe will fall short of expectations.
In addition, given that the small cap’s competitor, Wet Seal, is struggling, the analyst thinks Charlotte Russe could miss fourth quarter earnings. She also anticipates management will lower guidance for the first quarter of fiscal 2008.
Andreeva lowered her estimates today for 2007 and 2008. For fiscal year 2007, ended Sept. 30, the analyst predicts earnings of $1.41, down from previously forecasted $1.45. For fiscal year 2008, Andreeva anticipates earnings of $1.54, down from $1.64. Twelve analysts surveyed by Thomson Financial are on average expecting earnings of $1.45 for 2007, and $1.60 for 2008.
“…Implications of WTSLA news for this competitive fast fashion space and little visibility ahead, we would rather stay on the sidelines,” Andreeva wrote in a research note today.
Andreeva said she thinks further downside is a possibility given a tough environment for consumer discretionary stocks and if estimates are revised lower. The stock’s already down 30% since it missed its third quarter earnings.
Given negative sentiment toward consumer discretionary stocks, Andreeva said she thinks valuation could still recede and she doesn’t see substantial catalysts in the near term for comp and margin acceleration.
Despite a lower valuation, Andreeva writes, “we recommend that investors stay away from “cheap” stocks, especially given the tough tape for consumer discretionary.”
Shares of Charlotte Russe (CHIC) fell $1.56, or 9.79%, to $14.38 at 12:04 p.m. ET. For the past 52 weeks, shares have traded in the range of $14.32 to $33.93.
