So far, May hasn't been a particularly fun month for retail investors.
Whether you own Wal-Mart
What analysts say:
- Buy, sell, or waffle? Eleven analysts follow the company, giving it five buy ratings and a half-dozen holds.
- Revenue. On average, they're looking for 9% sales growth to $290.6 million.
- Earnings. Profits, however, are predicted to fall 40% to $0.06 per share.
What management says:
Getting back to the sales numbers, New York & Co. reported an 11.4% decline in same-store sales for April, mitigated by additional sales from new stores to arrive at a total year-over-year sales decline of 6.9%. This is compared with a superb March, in which the firm grew its same-store sales 4.5% and its total sales 16.9%.
Management had expected a decline of sorts, warning in early April that "sales [would] be impacted in April due to the shift of the Easter selling period to March." But the magnitude of that effect, combined with "weakness in mall traffic and unseasonable weather" (hey, wasn't the idea behind malls to move shoppers indoors so they would avoid the weather?) appears to have taken management by surprise. So much so that it felt compelled to lower its guidance for this quarter's numbers.
It had expected $0.11 to $0.14 per share in profits on "low single-digit comparable store sales" growth; the firm now believes that quarterly comps fell 1.2%, and total sales rose just 6.3%. As a result of the weakened sales picture, New York & Co. now expects to earn $0.08 per share before taking $0.07 in charges for "costs associated with the completion of the company's arbitration proceeding in April" and the liquidation of inventory at one of its closing JasmineSola stores. Result: $0.01 per share net.
What management does:
So much for the improving margins we had just started getting used to, as New York & Co. got its rolling gross, operating, and net numbers moving upward for the second quarter in a row last quarter. Liquidated inventory suggests a lower gross will arrive in Thursday's news, and with net profits of just a penny, versus $0.10 in the year-ago quarter, it's a pretty safe bet the rolling net margin will fall as well.
|
10/05 |
1/06 |
4/06 |
7/06 |
10/06 |
2/07 |
|
|---|---|---|---|---|---|---|
|
Gross |
32.8% |
32.4% |
30.8% |
30.0% |
30.9% |
31.4% |
|
Operating |
9.7% |
9.2% |
7.0% |
6.0% |
6.6% |
6.8% |
|
Net |
5.2% |
5.2% |
3.8% |
3.3% |
3.7% |
3.9% |
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Call me paranoid, but New York & Co.'s mention of liquidated inventory -- even though it was tied to an "unexpected loss" of a lease -- got my suspicions up that the company might have more generalized inventory problems, and might be masking them under cover of one store's vanishing lease. So the first thing I did upon seeing part of Thursday's expected bad news attributed to inventory issues was to check out how the inventories have been stacking up against sales.
What I found falls under the category "No news is good news." In the second half of 2006, New York & Co. grew its sales 9% year over year. Compared with that, inventory growth was a modest 6% on average. As far as I can tell, therefore, the "liquidated inventory" explanation holds water. And the even better news? The fire sale of inventories at this one store just might pull firmwide inventories down toward the anemic sales pace we're expecting to see Thursday.
Hey, when all you've got is lemons ...
What did we expect to see in New York last quarter, and what did we get? Find out in:
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Wal-Mart and Gap are Inside Value recommendations. Gap and PacSun are Stock Advisor selections.
Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
