Gap, Kenneth Cole News Hammers Apparel Stocks

Retailers drop after an earnings warning at one apparel firm and a round of layoffs at the Gap.
By Tim Arango ,

Bad news and analyst downgrades conspired to drag down shares in apparel retailers Friday.

Shoe and apparel maker

Kenneth Cole

(KCP)

was the major loser, down $4.23, or 18%, at $19.47, following Thursday evening's

warning that second-quarter earnings would be about half of what Wall Street expected.

In a conference call Friday morning, the company's chief financial officer, Stanley Mayer, told analysts and investors, "We are assuming the retail environment will remain problematic at least through the end of the year."

Investors also turned their noses up at

Gap

(GPS) - Get Report

Friday, following the company's decision, also announced Thursday, to

lay off between 500 and 700 workers, or 5% to 7% of its office staff. The company, which has long suffered from falling sales and fashion missteps, saw its shares fall $2.73, or 8%, to $30.81.

One analyst, Janet Kloppenburg of

Robertson Stephens

, downgraded Gap Friday morning to a market perform rating from a buy. "We believe

comparable-store sales remain weak, further pressuring earnings and possibly delaying an expected second-half turnaround," she wrote. (Kloppenburg's firm doesn't have an underwriting relationship with Gap.)

Kloppenburg also slapped a downgrade on

Ann Taylor

(ANN)

, the women's apparel retailer that had fallen on hard time with stale fashion but recently

rekindled investor interest with the hiring of new executives for its two main divisions. She dropped her rating from buy to market perform, on concerns the stock -- which since early May has approached her 12-month price target of $40 -- is becoming pricey. She also says the company's turnaround could take longer than expected due to continuing weakness in the economy. (Her firm has had a banking relationship with the company.) Shares were off $1.65, or 4.4%, at $36.20.

Other companies in the sector were also lower in Friday trading.

Ralph Lauren

(RL) - Get Report

was off $1.18, or 4.3%, at $26.31;

Liz Claiborne

( LIZ) was down $1.61, or 3.1%, to $49.86; and

Tommy Hilfiger

( TOM) was off slightly, down 10 cents at $12.94.

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