Brean Murray Downgrades Hartmarx

by MR Magazine Staff

NEW YORK – Four months after initiating coverage of Hartmarx Corp. with a “strong buy” recommendation, Brean Murray Carret & Co. analyst Gary Giblen has downgraded the clothing firm’s stock to “accumulate.”

The target price for Hartmarx stock was reduced to $10.50 a share from $11. The moves follow a 28.5% drop in second-quarter earnings and a reduction in year-end guidance from the Chicago-based company.

In his note, Giblen acknowledged the possibility of an acquisition of Hartmarx, probably at about $13 a share. Hartmarx shares ended the day at $5.95, up 5 cents.

Based on meetings with Homi Patel and Glenn Morgan, chief executive officer and chief financial officer of the firm, respectively, the Brean Murray analyst noted that weakness was concentrated in the 27% of sales made to the “mainstream” channel, including major department stores. The 6% of sales to “moderate/popular” stores, such as Kohl’s, were said to be doing “okay.” The mainstream share is expected to fall to about 21% by the end of the year, from 33% just a few years ago.

The decrease in moderate will be compensated for by increases in better merchandise. Giblen wrote that the upgrading of basic Hart Schaffner Marx items “has captured a $100 suit price increase without any resistance.”

Hartmarx’s prospects could be further clouded, the analyst said, by “further retailer private-label increases and consumer weakness.”