Investors Cash Out of Cache

Shares of the women's apparel retailer slumped Tuesday after it lowered its earnings outlook

Cache (CACH) fell out of fashion with investors June 5 after the New York-based chain of women's evening dresses and other apparel lowered its outlook for the second quarter and the year. The retailer's shares skidded 12.2% to $14.26 -- a new 52-week low-- in heavy volume on the Nasdaq.

Cache, which operates 294 stores in malls around the country, targets women aged 25 to 45 "who have a youthful attitude, are self-confident and fashion-conscious, and require a missy fit." Apparently, its customers aren't finding the fashions they want at Cache. The company said May same-store sales fell 2% and total sales dropped 3.5%.

The company slashed its second-quarter earnings per share guidance to $0.06-$0.08, from $0.20-$0.24. Sales were pegged in the range of $67 million to $69 million, down from its previous forecast of $73 million to $75 million and $71.7 million reported in the year-ago quarter. Analysts had expected EPS of 21 cents on revenue of $72.9 million for the quarter, according to Reuters Estimates.

And for all of 2007, it lowered its EPS view from $0.75-$0.80 to $0.47-$0.49. Net sales for 2007 are now projected at $267 million to $273 million, down from an earlier forecast of $284 million to $294 million. Analysts were expecting EPS of 75 cents (before items) on revenue of $287.2 million for the year.

"We are disappointed in our May sales results, which reflected continued softness in our spring/summer knit top assortments partially offset by strength in dresses," said Brian Woolf, Chairman and CEO of Cache in a press release.

"We are currently taking the markdowns necessary to end the quarter in a healthy inventory position and are re-balancing our assortments to be in a better position for the fall/holiday season. Based on this, we have reduced expectations for the second quarter and full fiscal year," Woolf said.

A couple of analysts reacted by downgrading the stock. Brean Murray, Carret & Co. analyst Eric Beder lowered Cache to hold from buy, saying the chain continued its string of disheartening results. While part of this miss is due to weakness in traffic in the women's apparel area, the company has also erred on the fashion side, said Beder in a research note.

At Roth Capital, analyst Elizabeth Pierce said in a note that Cache continues to struggle with merchandise issues, especially in the tops category, and she does not expect the situation to improve until the fourth quarter. She believes marketing expenses will continue to pressure the company's results, especially as its sales remain under pressure. She downgraded the stock to hold from buy, and cut her earnings forecasts and price target from $23 to $15.

Cache is just one of many other apparel shops that are fighting for women's dollars at a time when the housing market has slowed and gasoline prices remain high. Beder at Brean Murray also downgraded New York & Co. (NWY) to hold from buy on June 5, noting that the chain has been discounting merchandise to entice customers. "It has become increasingly obvious to us that the women's market has remained troubled, with traffic declines continuing to bedevil retailers and leading to increased discounting," Beder wrote in a note. New York & Co. shares fell 3.7% to $11.75.

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