To date, athletic footwear maker recommendation Saucony
Saucony did have a bit of a hiccup on Friday, however. In response to a less-than-thrilling earnings report released after market close on Thursday, Saucony's stock price dropped 6%. Perfectly understandable in light of the news: Saucony experienced an 11% decline in sales vs. the first quarter of 2004, and its earnings suffered an even steeper drop -- down 24% to $3.2 million.
Of course, some might take it as good news that earnings per diluted share declined somewhat less -- down 21%. But at the Fool, we know that when earnings decline less than the overall firm-wide numbers suggest they should, there's stock dilution afoot. And indeed, after a quick glance at the income statement and a couple of calculator key-presses, we see that Saucony's B-shares outstanding (the company has two separate classes of common stock) have increased by 8.7% since April 2, 2004. Ouch. Much as we'd like to see the profits decline mitigated, that's not at all the way to go about it, Saucony.
Two other things from the earnings release are also distressing. In general, Saucony presented its results in a matter-of-fact, no-sugar-coating-added manner, but the CEO's upbeat statement that he was "pleased" with the results will no doubt stick in more than a few investor craws. Double-digit profit declines are nothing to crow about.
Second, while it's good to see Saucony acknowledging that foreign exchange fluctuations boosted its earnings, those are really events completely beyond the company's control, and not something for which it can take credit. Knowing that, the CEO's statement, "Our gross margin improvement reflects the favorable impact of foreign currency.," strikes rather a strange note. Especially when you consider that the U.S. dollar has experienced some appreciation recently, which may just as easily hurt gross margins in the future if the dollar's upward trend continues.
The final bit of bad news regards forward guidance. Summarized, Saucony expects Q2 to look an awful lot like Q1, with revenues being pretty much flat sequentially. Similarly, by calling for about $164 million in total sales over the course of the year, Saucony implies that sales will remain flat for the entire rest of this year; there will likely be zero growth, and actually about a 1% decline, compared to fiscal 2004.
Which leaves this Fool wondering: Can we at least expect that Saucony's no-growth expectations will also apply to the share count?
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