Thursday, March 18, 1999
DJIA 9897.17 +17.76 (+0.18%) S&P 500 1304.09 +6.27 (+0.48%) Nasdaq 2437.49 +8.52 (+0.35%) Russell 2000 399.38 +0.95 (+0.24%) 30-Year Bond 96 18/32 +9/32 5.48 Yield

An Investment Opinion
by Louis Corrigan

Books-A-Million books Ho-Hum Results

Remember Books-A-Million (Nasdaq: BAMM)? The small-town bookseller briefly turned Internet highflyer last November and -- BAMM! -- soared from a depressed $3 to $46 literally in a matter of days after relaunching its website and featuring super discounts to members of its Millionaire's Club. Some lucky few investors may have joined the real millionaire's club on that rally. Lots of insiders did, if one can trust the astonishingly long list of top executives and longtime holders who cashed out during those heady days. But perhaps that's testimony to the basic common sense of these folks connected to the company. At least, they didn't believe the daytraders' hype. As the Q4 earnings report issued last night shows, there's not yet any noticeable gold amidst all the e-commerce glitter enshrining this ho-hum retailer turned e-tailer.

Sales for the quarter ended January 30 edged ahead just 3.1% to $116.5 million while same-store sales actually fell 0.9%. Still, earnings met the consensus earnings estimate of $0.37 per share, though that was flat with the year-ago period. Full FY99 sales rose 7.1% to 347.9 million despite a 2.8% decline in comp-store sales. However, full-year earnings collapsed to $0.26 per share from $0.40 in FY98. After all, it was the poor results suffered during the early part of last year that had helped push the shares as low as $2 1/4 in the first place. The company closed the year with 175 stores in 17 states after opening 10 net new stores in the past year, far below the 25 stores management said would be opened during FY99. Perhaps some resources were redirected toward building up its website.

Traders reacted with some confusion. Though the stock rocketed from $10 to as high as $14 on Tuesday in anticipation, it sold off to $11 5/16 yesterday prior to the earnings release. Today, it opened near the day's low of $10, bounced up to $12 3/16 by mid-morning before settling back near yesterday's close. All of which suggests that the stock is still in the hands of speculators. Yesterday's release gave no details regarding the company's Internet sales, which one has to assume were negligible.

A year ago, with the stock at $6, I suggested that Books-A-Million looked "relatively cheap compared to the competition." Though the company has just one-tenth the sales of a Barnes & Noble (NYSE: BKS) or a Border's (NYSE: BGP) and much tighter net margins (1.3% in FY99), Books is the third largest publicly traded book retailer, with a nice presence in smaller markets, especially in the Southeast. Still, with the increasingly powerful Amazon.com (Nasdaq: AMZN) sucking up marginal sales from even the giants -- which have lost value accordingly -- it's hard to see a compelling future for Books-A-Million.

While small-town bookstores have a definite social value, the Internet actually brings the most competition to exactly such underserved areas. I'm just not sure why anyone would want to pay 43 times earnings for Books-A-Million when they could pay about 12 times earnings for Borders and get a far better-positioned Web offering basically for free. Of course, Amazon has made even Borders a suspect investment candidate.


Bookseller Barnes & Noble (NYSE: BKS) recorded gains of $5 9/16 to $34 7/16 after it and German publishing giant Bertelsmann AG filed for an IPO of the barnesandnoble.com online business. The company will sell between 15% and 20% of its shares to the public and trade on the Nasdaq as BNBN.

American Airlines parent AMR Corp. (NYSE: AMR) -- which warned that it expects first-quarter earnings to come in between $0.30 and $0.35 a share following last month's pilots' sick-out that cost the airline $200 million to $225 million before taxes -- ascended $3 1/4 to $60 3/4 this morning. The market's current mean EPS projection is $0.65. The company also announced plans to buy back up to an additional $500 million in shares.

Internet investment firm CMGI (Nasdaq: CMGI) raced ahead $14 7/8 to $190 1/4 following the announcement of a 2-for-1 stock split, effective on or about May 27. This would be CMGI's fifth stock split in its five years as a public company -- the company just split its shares 2-for-1 in January. In other company news, CMGI is backing off its efforts to seek other possible buyers for Internet portal Lycos (Nasdaq: LCOS) in order to avoid giving USA Networks (Nasdaq: USAI) the right to buy up to 17.5% of Lycos. For more on this, head to this morning's Breakfast With the Fool.

Children's and branded shoe marketer Stride Rite Corp. (NYSE: SRR) tied on $3/4 to $11 1/2 after reporting fiscal Q1 EPS of $0.13, up from $0.09 last year and $0.03 above Wall Street's consensus estimate. Sales in all of the company's divisions improved over year-ago levels except the international division, which slowed "slightly."

Metal halide lighting systems maker Advanced Lighting Technologies (Nasdaq: ADLT) brightened $3 3/16 to $10 9/16 after General Electric (NYSE: GE) agreed to buy a $20.55 million stake in the company, showing "confidence in metal halide technology and in Advanced Lighting Technologies." GE has owned a small block of Advanced Lighting shares since the company's initial public offering in December 1995.

Critical fluids handling equipment company Denali Inc. (Nasdaq: DNLI) climbed $3/4 to $9 after agreeing to buy Dutch company Welna NV for approximately $55 million. Denali anticipates that the transaction, expected to close this summer, will be accretive to earnings in 2000 and beyond.

Measurement, color printing, and video and networking firm Tektronix Inc. (NYSE: TEK) moved up $3/8 to $18 1/8 after reporting fiscal Q3 EPS of $0.31, in line with Street estimates but well off last year's $0.67 per share mark. The company returned to profitability after two quarters under water; CEO Jerry Meyer said Tektronix is "on track" with its cost reduction activities.

Payroll and benefits outsourcer and consulting firm Staff Leasing (Nasdaq: STFF) signed up $5 9/16 to $15 7/8 after confirming a $17 1/2 per share buyout proposal from Paribas Principal Partners. The offer represents about a 70% premium over yesterday's closing price. Staff Leasing formed a special committee of directors to evaluate Paribas' overture.

Medical devices maker and developer Boston Scientific (NYSE: BSX), which today named former Biogen CEO and President James Tobin to those positions at Boston Scientific, gained $4 3/8 to $38 3/8. Tobin, credited with the launch of Biogen's (Nasdaq: BGEN) blockbuster Avonex multiple sclerosis drug, will be counted on to help in the battle against Guidant (NYSE: GDT) and Medtronic (NYSE: MDT). Boston Scientific announced FDA clearance for its Constellation mapping catheter late yesterday.

Healthcare financing company HealthCare Financial Partners (NYSE: HCF) grabbed $2 1/16 to $26 1/8 on last night's news that it retained First Union Capital Markets to arrange a $500 million financing intended to restructure its overall debt facilities, lowering HealthCare's cost of funds by 15%.

Women's apparel retailer Talbots Inc. (NYSE: TLB) sewed up a gain of $1/2 to $26 after Goldman, Sachs & Co. upgraded the stock to "market outperform" from "market perform." The company yesterday announced fiscal Q4 EPS of $0.26, in line with Street projections, and plans to sell its merchandise on the Internet.

Enterprise helpdesk software developer Clarify Inc. (Nasdaq: CLFY) cleared up gains of $7/8 to $27 1/4 after Adams, Harkness & Hill upgraded the stock to "accumulate" from "market perform."


Athletic shoe marketer Nike Inc. (NYSE: NKE) tripped $1 7/8 to $55 1/2 perhaps on worries that its fiscal Q3 earnings report, expected after today's close, will contain some bad news. Analysts surveyed by First Call are expecting EPS between $0.35 and $0.40 for the quarter, up from last year's $0.25 performance.

PC and computing products maker Compaq Computer (NYSE: CPQ) lost $1 3/16 to $32 1/16 after Piper Jaffray analyst Ashok Kumar lowered his Q1 EPS estimate to $0.20 from $0.35 and his revenue estimate for the period to $9.4 billion from $9.6 billion, citing "anemic revenue growth" and a lingering "inventory overhang" in PCs.

Radio frequency components and modules supplier RF Monolithics (Nasdaq: RFMI) was stomped for a $3 1/16 loss to $7 7/16 after reporting fiscal Q2 EPS of $0.11, down from last year's $0.12 and short of the First Call mean estimate of $0.17. The company said pricing pressure in its low power components business and vendor delays will result in "flat to modest" sales growth in the second half of the year. Needham & Co. and BancBoston Robertson Stephens both downgraded the company today.

Copper, aluminum, and fiber optic cable and wire manufacturer General Cable Corp. (NYSE: GCN) unraveled for a $2 3/8 loss to $10 3/8 after saying pricing pressure in the building wire market and lower demand and pricing for data communications cable will result in Q1 EPS $0.15 to $0.17 below the $0.38 expected by the two analysts surveyed by Zacks. Fellow telecommunications cable and wire firm Superior TeleCom (NYSE: SUT) dropped $2 1/2 to $18 3/16 in sympathy.

Specialty chemicals and engineered materials provider Engelhard Corp. (NYSE: EC) spilled $1 5/16 to $16 15/16 after saying lower year-on-year earnings from its industrial commodities management business will result in Q1 EPS of about $0.28, or $0.04 shy of what the company said analysts had been anticipating.

Digital image chips developer Genesis Microchip (Nasdaq: GNSS) fell $1 5/16 to $30 3/8 after reporting fiscal Q3 EPS of $0.19, which excludes income taxes due to tax loss carryforwards. On a fully-taxed basis, the company earned about $0.13, or a penny more than the First Call mean estimate. The company reportedly told analysts during a conference call that it sees the portion of its revenue mix represented by digital projection products and imaging systems declining in the coming periods, suggesting future growth will be driven almost exclusively by the firm's flat panel display chips.

Industrial water treatment systems and products maker U.S. Filter (NYSE: USF) gave back $1 15/16 to $28 after takeover rumors that boosted the company's shares 20% yesterday died down somewhat this morning.

Anti-virus software developer Network Associates (Nasdaq: NETA) sank $6 1/16 to $35 1/16 following a BancBoston Robertson Stephens downgrade to "buy" from "strong buy."

Hardee's and Carl's Jr. quick-serve restaurants operator CKE Restaurants (NYSE: CKR) slipped $5 3/8 to $18 3/8 after reporting fiscal Q4 EPS of $0.25 (excluding a $900,000 extraordinary gain), a penny ahead of last year's results but a penny below the mean estimate of the eight analysts surveyed by Zacks.


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