POST TRADE DE-BRIEF
Exceprt from a note to my Whisper subscribers:
FIVE Beats – But Revs, Guidance Light
Posted 12/05/2013
Market & Portfolio Update
One of the things I hate the most is when my fears manifest themselves into reality; fortunately, we are taught to prepare for them.
As an investor, trader and pilot (and OCD sufferer), I make it habit to think about most, if not all of the potential risks in just about any situation. The reason why I assume these sometimes low probability risks can happen is so I can not only be ready for when they occur, but mitigate the damage they cause.
Whenever I fly, I’m constantly on the lookout for potential tribulations with weather, engine or system failures and other risks that may occur. Before I plan a trip and while I am in the air, I’m constantly on the lookout for areas to land safely in case of emergency.
With stocks, the planning is similar. We do our best to ensure a successful “trip” from entry to exit, examining the risks and rewards of each trade carefully and setting a plan for early bailouts. When things go south in a trade, we set “areas” (stop prices, etc) which are there to provide relatively safe landings, i.e. not wiping out our accounts.
When I made the decision to buy FIVE, I felt I was fairly vocal about the risks I saw in the trade and in that effort, reduced our allocation to half of what we normally would buy.
To be honest, I have started to buy into the theory that consumers are actually doing better and therefore spending more, but after results from retailers continue to roll in, I’m not sure how confident I am in the fiscal health of the average American. Companies like Ulta, who missed earnings tonight and Guess?, who missed yesterday, should be thriving in my opinion, but instead we are seeing weaker revenues.
There are a myriad of other retailers who are looking pretty pathetic given the alleged economic improvements.
I’m not sure if it’s a combination of ObamaCare sticker shock/fear (whether real or perceived), coupled with sequestion cuts and a change in confidence that’s hurting the consumer, but it’s apparent. Maybe Americans are simply playing it safe and sticking to the necessities like autos and homes because of what we went through just 4 years ago.
Or maybe everyone is just shopping on Amazon? 🙂
The reality is that things aren’t too bad, but they aren’t too good either. Earnings in Q3 were much better on average than many of us thought they would be and stocks are at all time highs, so perhaps it’s now the CEOs and CFOs chance to play possum and keep those expectations realistic by lowering guidance.
I guess I was just a bit shocked when I was reading through FIVE’s numbers; specifically their revenue as I believe their offerings are viable, relevant and desirable in this climate. The weak revs and guidance were also a shocker to me because THEY JUST RAISED THEIR GUIDANCE LAST QUARTER! Was Q3 really that bad?
FIVE Below did beat their earnings estimate, but only by 1 cent. The discount retailer posted earnings per share of 5 cents, excluding items, on $111 million in revenue, compared to the Zacks consensus estimates for earnings per share of 4 cents on $112 million in revenue.
Shares were off sharply in extended-hours trading because the company’s revenues were on the light side and guidance also slightly lower than expected. The company forecast fourth-quarter earnings per share of 49 cents to 51 cents, excluding items, on revenue of $214 to $217 million; that compares to expectations of earnings per share of 52 cents on $218 million in revenue.
FY2014 guidance was light with the company looking for EPS of $0.70-$0.72 vs. $0.73 consensus Estimate and FY14 revenue of $538-$541 million vs. $542.94 million consensus estimate.
Five Below is growing; the company opened 28 net new stores and ended the quarter with 304 stores in 19 states. This represents an increase in stores of 25% from the end of the third quarter of fiscal 2012.
Shares are lower in the post market and will most likely open sharply lower in the morning; instructions on our exit are below. This is not a stock that we will be holding for a bounce, but you must be careful with your orders.
Shares really closed at $50.87, but some websites are showing a $47.75 closing value, which is false.
Like many of you, I am upset with this report, but we did all we good to prepare for it and we have to continue to play the game, even if we are dealt a crappy hand from time to time.
The broad market continued its slide as I anticipated going into tomorrow’s all important BLS report. I expect the jobs number to be strong given the ADP, unemployment and Challenger data; this could mean more selling into the weekend.