Bear Swallows Consumer DM Stocks
ONE DAY DOES not a year make, but on Wall Street, a day can unmake a year.
The Aug. 31 stock market meltdown battered the prices of consumer direct marketing stocks, which had already suffered from weak performances since June 1. The result was the erasure of virtually all gains these issues made during the last year.
Of the 52 consumer DM stocks tracked by Gruppo, Levey & Capell Inc. in its GLC Portfolio, 49 posted declines in stock prices in the three-month period ended Aug. 31.
Overall stock prices in the consumer DM segment-which includes consumer catalogs, electronic marketers, direct marketers and retailers-averaged a 30.2% decrease for the quarter, a poor showing compared with the 12.2% slide of Standard & Poor’s S&P 500 index.
The three-month decline, topped by the Aug. 31 selloff, resulted in a 9.4% drop in the average price of a consumer DM stock. The S&P 500, meanwhile, climbed a modest 6.2% for the 12-month period.
Looking at individual consumer DM sectors, volatile market conditions coupled with disappointing earnings and the financial reporting entanglements of several companies cost non-catalog marketers heavily. In both the three- and 12-month periods, stock prices fell 33% and 18.5%, respectively.
For example, membership, travel and real estate services provider Cendant Corp. was trading at $41 before the announcement on April 15 that it had uncovered massive accounting irregularities. By late July, it had dropped to $16 and at the end of August hit a low of $11.63.
Lower-than-expected earnings caused the stock price of Quintel Communications, a direct marketer of telephone entertainment, theme-related memberships and voice-mail services, to fall from a high of $12.75 earlier in the year to $1.88 on Aug. 31, an 85.2% decrease.
Quintel missed analysts’ financial projections for the fiscal sixth months that ended May 31, largely due to lower sales of its 900-number services and the dissolution of a partnership with AT&T.
Electronic marketing was another hard-hit sector. Excluding Amazon.com and SportsLine USA, which experienced triple-digit increases, these stocks declined an average of 31% for the 12-month period, and 23% over the quarter.
When investors got jittery about the stock market, the earlier run-up of Internet issues made them prime “sell” candidates. The stock prices of Internet-based music retailer CDnow Inc. and Internet-based general merchandise marketer CyberShop International Inc. each fell more than 50%.
Infomercial marketer National Media Corp. was the only stock in this category to go up in price in this time frame. Its 144% price jump reflected a significant equity investment in August and improved financial performance as of June 29.
Most consumer catalog companies weren’t as fortunate.
Equity analysts were predicting strong second quarter and annual results at Coldwater Creek, Delia’s Inc. and Brylane Inc., and when they all missed earnings projections the sector was pummeled. It fell 32% in the June-August period, as the less-than-optimal income reports at these previous high flyers led investors to paint the consumer catalog market with a broad brush.
Due to the market reversal, consumer catalogs averaged a 15% dip in stock price for the 12 months ended Aug. 31.
Only four companies registered stock price over those 12 months, including Hanover Direct, whose stock rose 91%. As with the other catalog stocks, however, this was mainly due to the issue’s poor performance a year ago. Hanover Direct’s stock actually fell 19% from June through August.
