August 23, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of discount store operator Fred's (Nasdaq: FRED ) sank 10% today after the company's quarterly results and guidance disappointed Wall Street.
So what: Fred's second-quarter earnings rose a solid 19%, but weak second-quarter revenue -- same-store sales declined 1% -- coupled with downbeat guidance for the full year is triggering concerns over slowing growth going forward. Of course, Fred's shares have soared over the past year, as encouraging results prompted analysts to keep raising expectations, so a bit of a hiccup shouldn't come as too big of a surprise.
Now what: Management now sees full-year 2012 EPS of $0.97-$1.04, down from a prior view of $0.98-$1.04, and versus the average analyst estimate of $1.02. "As we look ahead to the second half of the year, we expect that the macroeconomic environment in our region of the country will continue to lag the national numbers and anticipate an intensely competitive retail environment during the third and fourth quarters," cautioned CEO Bruce Efird. With the stock now off about 15% from its 52-week high and trading at a reasonable forward P/E of 12, however, those headwinds might finally be discounted into the price.
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