Mossimo Expects Drop in Earnings; Stock Hits New Low

IRVINE — Mossimo Inc. said Wednesday that its fourth-quarter profits will be less than half what analysts had expected, sparking yet another round of stock bashing by disgruntled shareholders.

The apparel company linked the anticipated earnings drop to late deliveries of holiday merchandise, unexpected expenses associated with new lines and apparent warehouse problems that created an inventory shortage. The disappointing report came even as Mossimo continued to enjoy strong sales.

Mossimo’s stock dropped to a new low of $9.125 on Wednesday in New York Stock Exchange trading before rising slightly to close at $9.625, down $1.125. The stock drop was the latest in a growing string of declines for Mossimo, which hit a high of $50.125 in June.

Mossimo said it expects to report fourth-quarter earnings of 3 cents to 8 cents per share, far below analysts’ estimates of 18 cents a share. Mossimo earned 19 cents a share for the fourth quarter a year ago.

It is the second quarter in a row in which the company has failed to meet analysts’ expectations.

Earnings for the full year will likely range between 72 cents and 77 cents per share, down from the 89 cents registered last year and below the 88 cents expected by analysts.

Mossimo executives said that the anticipated earnings drop was driven in large part by “price concessions” the company was forced to pay to retailers when apparel and accessory shipments fell behind during the holiday shopping season.

Mossimo also blamed an unexplained “inventory shortage” for the disappointing earnings.

Some apparel industry analysts questioned whether Mossimo has enough seasoned managers in place to handle the company’s dramatic growth.

“Their excuses were like a basket full of unanswered questions,” complained one Wall Street analyst who covers the company. “It seems unusually chaotic over there.”

Other analysts linked Mossimo’s operational problems in recent quarters to a staggering growth rate at the company, which expects fourth-quarter sales to rise by 50%, to about $27 million, and projected a similar growth rate for the entire year.

“These are serious growing pains,” said Fay Landes, a New York-based analyst with Smith Barney. “It’s easy to forget how difficult a business this is to properly execute. But remember that Mossimo is growing fast, and that’s a great problem to have.”

Shelly Hale Young, a San Francisco-based analyst with Hambrecht & Quist Group, expressed concern about where Mossimo’s future revenue growth will occur.

“My understanding is that the whole men’s section, including sports and active wear, will only grow between 10% and 15% next year,” Young said. “That means all the growth will come from women’s wear, which is a radical departure.”

In its press release, Mossimo acknowledged that its sales growth during 1997 will be about 15%, far below this year’s dramatic growth rate, and below what analysts had anticipated. Observers tied the slower growth rate to the company’s attempt to gain better control over its operations.

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Mossimo Hits a Low

After reaching a high of $50.13 per share in June, Mossimo stock has fallen more than 80%. The price fell to $9.63 Wednesday on news fourth quarter and 1996 earnings would be lower than expected. Weekly closing stock prices and Wednesday’s close:

1996

June

7: $48.00

14: $42.13

21: $39.00

28: $39.88

****

July

5: $38.63

12: $35.25

19: $33.63

26: $35.63

****

August

2: $38.00

9: $39.75

16: $42.50

23: $41.63

30: $45.38

****

September

6: $44.13

13: $49.13

20: $41.00

27: $31.50

****

October

4: $29.63

11: $22.00

18: $26.88

25: $21.50

****

November

8: $16.50

15: $15.13

22: $14.63

29: $15.25

****

December

6: $14.50

13: $13.75

20: $13.00

27: $12.50

****

1997

January

3: $12.38

10: $11.75

Wednesday’s close: $9.63

Source: Bloomberg News