THE MARKET MIDDAY
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Goody's Loses Its Spring Glow
Shares of Goody's Family Clothing (Nasdaq: GDYS) lost their spring glow this morning, falling $3 7/32 to $8 3/4, after this retailer of moderately priced family apparel warned that Q1 earnings will come in "significantly lower" than the $0.22 per share reported in the year ago period. That news no doubt surprised at least four of the five analysts covering the company since their "strong buy" ratings contributed to a consensus estimate of $0.24 per share for the period. Indeed, Goody's had been inching higher the past few months, hitting $14 5/8 just last Thursday, nearly doubling from the low registered in the bleak moments of the fall market panic.
Goody's reported that sales for March increased 14.4% to $111.8 million on a comp-store sales gain of 2.7%. For the first two months of the quarter, revenue rose 14.6% to $173.9 million on a 1.8% boost in same-store sales. In this case, though, same-store sales figures just can't tell the story. The powerful Easter selling season fell one week earlier this year, benefiting March rather than April. Given that, same-store sales actually remained weak, following up on a 4.7% decline in Q4, when unseasonally warm weather forced substantial markdowns to clear inventories. In fact, Goody's again had to increase promotional activities to keep inventories at planned levels, thus hurting profit margins despite the sales increase.
The last nine months have been tough ones for Goody's, due partly to weather, fears of recession, and perhaps some increased competition from the likes of the Gap's (NYSE: GPS) Old Navy unit, which has been taking market share from many family-oriented apparel retailers. After delivering a 6.9% jump in same-store sales for the first half of FY98, which sent the stock to a July high of $29, the company's business hit a wall, and price cuts followed. FY98 sales rose 12.3% to $1.09 billion, but same-store sales finished the year up just 0.5%. EPS plunged to $0.81 versus $0.99 in FY97.
Even so, Goody's remains a solid retailer of mainstream branded apparel from the likes of Levi's and Duckhead. The company operates more than 259 stores in 16 states, mostly in the Southeast and Midwest, particularly in smaller cities such as Paris, Texas, and Eufaula, Alabama. It added 36 new stores last year and plans to open 30 to 35 more this year. Moreover, the company exited January with $89.3 million in cash (or $2.63 per share) and no debt, a substantial change from just two years ago when the company's cash and debt cancelled each other out. And despite the recent troubles, sales and profits have improved nicely since the stock traded at this same level back in the spring in 1997.
Yes, the firm's momentum is moving in the opposite direction today, meaning the projected earnings of $1.18 per share for FY99 will need major revision. Yet figuring Goody's might earn $1 a share and backing out the cash, the company now trades at just over 6 times FY99 earnings. Though momentum means a lot for a retailer, this one's worth a closer look.
Security software maker Check Point Software (Nasdaq: CHKP) locked up $4 13/16 to $31 9/16 after the company said results for the first quarter will meet its expectations due to strong demand for its products and services. The company plans to announce official results before the market opens on April 19. The news comes on the heels of an earnings warning from rival Network Associates (Nasdaq: NETA).
Construction products and services maker and marketer American Buildings Co. (Nasdaq: ABCO) added $13 1/8 to $35 after Canada's ONEX Corp. agreed to buy the company for $36 per share in cash, about a 65% premium to yesterday's closing price. American Buildings' board of directors approved the merger agreement and is recommending it to shareholders.
Footwear retailer Shoe Pavilion (Nasdaq: SHOE) laced up $1 17/32 to $6 9/32 after announcing a direct link to its online store from iVillage Inc.'s (Nasdaq: IVIL) shopping channel. The company said Q1 sales were 24.5% over year-ago levels at $14.3 million, while same-store sales were off 1.5%.
Consumer information and data processing company infoUSA Inc. (Nasdaq: IUSAA), which announced a multi-year contract to license its business database to Dell Computer (Nasdaq: DELL), rose $2 1/16 to $8 3/4. Yesterday afternoon, infoUSA said it will start selling advertising on its website.
Discount and online brokerage JB Oxford Holdings (Nasdaq: JBOH), a recent Foolish Double, moved up $3 9/16 to $12 11/16 after it said in a conference call with analysts yesterday that it is optimistic about the prospects for the company and the industry in 1999. "We have taken the company to the point that [in Q4 we generated a pre-tax profit of] approximately $1 million a month," said CEO C. L. Jarratt. "We expect to meet or exceed that in the first quarter.''
Internet software developer Spyglass Inc. (Nasdaq: SPYG) added $4 1/8 to $17 3/4 after gaining $4 3/4 yesterday on news of a three-year, $20 million licensing deal with software giant Microsoft (Nasdaq: MSFT). Today the company said it agreed to buy California's Navitel Communications, a privately held company that develops Microsoft Windows CE-based software and applications platforms for Internet enabled telephones. Spyglass will issue about 1.3 million shares to Navitel stock and option holders, valuing the transaction at about $11.3 million on the date the definitive agreement was reached.
Natural gas processor and marketer Aquila Gas Pipeline Corp. (NYSE: AQP) piped up $15/16 to $7 15/16 this morning. Tomorrow, UtiliCorp United (NYSE: UCU) will launch an $8 per share tender offer for the 5.4 million shares of Aquila that it doesn't own -- about 18% of the current outstanding. The deal is contingent on stockholders tendering enough shares to boost UtiliCorp's stake to 90%; the price represents about a 23% premium to Aquila's closing price the day the offer was first announced in November. The status of this offer was uncertain as recently as Monday.
Telecommunications information systems company Amdocs Ltd. (NYSE: DOX) advanced $5/8 to $21 5/8 after it said it will reevaluate its plans to buy Architel Systems Corp. (Nasdaq: ASYCF) following Architel's announcement that it restructured its relationship with its largest customer, cutting its projected fiscal-year 1999 revenues in half.
Office products retailer Office Depot (NYSE: ODP) bagged gains of $2 5/16 to $24 1/16 after announcing that its e-commerce site will be featured through various links on America Online (NYSE: AOL) and the online service company's AOL.COM and CompuServe offerings. The marketing agreement is for one year.
Cable Internet service provider SoftNet Systems (AMEX: SOF) got $1 1/16 to $50 1/16 after announcing last night that it plans to move from the American Stock Exchange to the Nasdaq effective April 14 pending expected shareholder approval at a meeting the day before. The stock will trade as SOFN.
Contract offshore drilling company R&B Falcon (NYSE: FLC) took $15/16 to $7 9/16 after Morgan Stanley Dean Witter upgraded the shares to "outperform" from "neutral." Yesterday the stock lost $7/8 on news that Steven Webster will step down as president and CEO on May 31 to be replaced by Chairman Paul Loyd, Jr.
X86 chipmaker Advanced Micro Devices (NYSE: AMD) dropped $1 to $15 3/16 after warning -- for the third time in just over two months and mere week before its scheduled Q1 earnings release -- that shipments of its K6-2 processors during the current quarter will come in below expectations, this time "substantially below plan." AMD is now expecting revenues of $630 million, down 20% sequentially, due to "severe price competition" with rival Intel (Nasdaq: INTC), which has lowered K6 average selling prices (ASP) to $78 per chip.
Specialty hot teas maker Celestial Seasonings (Nasdaq: CTEA) was dunked for a $2 5/8 loss to $18 1/8 after saying transition issues related to a new warehouse, product shortages, and trade promotions timing problems will result in fiscal Q2 revenues roughly flat with last year's $32.3 million figure. EPS for the period is expected to be $0.28, down from last year's $0.38 and below analysts' expectations of $0.41.
Predictive software firm HNC Software (Nasdaq: HNCS) tanked $12 7/8 to $14 11/32 after warning that a revenue and profit shortfall at its insurance solutions group will result in Q1 revenues about 10% below expectations and EPS between $0.15 and $0.17 (excluding amortization expense), missing the First Call mean estimate of $0.22. At least three brokerage firms downgraded the firm this morning.
Managed health care organization Humana (NYSE: HUM) sank $5 13/16 to $10 3/8 after warning that higher medical cost trends will result in Q1 EPS between $0.20 and $0.24, compared with the First Call mean estimate of $0.34. The company also said it will take a $90 million charge in the quarter to boost medical claim reserve and account for issues related to its recently renegotiated two-year healthcare provider contract with Columbia HCA (NYSE: COL).
Floorcoverings retailer Maxim Group (NYSE: MXG) was shellacked $1 5/16 to $7 51/16 after Merrill Lynch reduced its near-term rating on the stock to "neutral" from "buy."
Telecommunications operation support systems provider Architel Systems Corp. (Nasdaq: ASYCF) dropped $11, or 61%, to $7 after saying that under a restructured contract with number-one client ICG Communications (Nasdaq: ICGX), the company will stop providing professional services to ICG. Architel had originally expected to realize $20 million in fiscal 1999 revenues from providing services to ICG; it now is expecting half that amount.
Wound treatment programs operator Curative Health Services (Nasdaq: CURE) was cut $2 13/16 to $8 15/16 after receiving a subpoena for documents about its business operations and practices from the Department of Health and Human Services' inspector general as part of an unspecified "Health Care Investigation." The company said it plans to cooperate with the investigation.
Diversified metals company Allegheny Teledyne (NYSE: ALT) slipped $13/16 to $19 1/4 after saying reduced demand from some of its markets and titanium pricing pressures may result in Q1 EPS (before charges) "somewhat short" of last year's $0.35. The First Call mean estimate had called for EPS of $0.37. Bear Stearns lowered its rating on the firm to "attractive" from "buy."
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