Monday, June 18, 2012
Body Central (BODY) - Vol up 165%; Stock Down 50%... Again... Trust in Management's Visibility Wavers
--- OVERVIEW ---
BODY is trading $8.63, down 46.0% with IV30™ up 165.8%. The LIVEVOL® Pro Summary is below.
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Body Central Corp. is a specialty retailer of young women's apparel and accessories operating retail stores in the South, Mid-Atlantic and Midwest regions of the United States. In addition, the Company operates a direct business through its e-commerce Website, www.bodyc.com, and Body Central catalog.
This is a vol and stock price note on a name that has been crushed of late with two ~50% down days since May, including today's action.
--- ANALYSIS ---
Let's start with the Charts Tab (six months), below, then get to the news. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
On the stock side, I've highlighted the two catastrophes of late. The first was due to an earnings miss, the second (today) on lowered guidance. I've included news snippets from both of those days, below.
(Reuters) - Body Central Corp (BODY) forecast second-quarter results below analysts' estimates as it expects a sharp drop in same store sales, sending the apparel maker's shares down 32 percent.
"We continue to see softness in overall store sales trends through April," Chief Executive Allen Weinstein said.
The company expects second-quarter comparable store sales to fall 5 percent to 7 percent, compared with a 15 percent rise in the year-ago period.
The company said it expects to earn 26 to 28 cents per share, on revenue of $80 million to $82 million in the second quarter.
Analysts were expecting earnings of 36 cents a share on revenue of $86.6 million, according to Thomson Reuters I/B/E/S.
The company posted first-quarter results that met Wall Street view of 36 cents per share. Revenue was $82.7 million, slightly above analysts' average expectation of $82.1 million.
Source: Reuters via Yahoo! Finance; Body Central outlook disappoints, shares plunge, written by Arpita Mukherjee in Bangalore; Editing by Saumyadeb Chakrabarty.
So guidance was lowered to 26 to 28 cents, and then...
JACKSONVILLE, Fla. (AP) -- Clothing-store chain Body Central Corp. is cutting its second-quarter and full-year earnings and revenue forecasts, citing soft sales since April. The company's stock lost nearly half its value.
Shares of the women's clothing and accessories company, whose brands include Body Shop and its namesake, tumbled $7.42, or 46.4 percent, to $8.57 in morning trading on Monday. The stock fell to a fresh 52-week low of $8.20 earlier in the session.
Body Central now expects earnings of 19 cents to 21 cents per share on revenue of $77 million to $79 million. Its prior guidance called for earnings of 26 cents to 28 cents per share on revenue of $80 million to $82 million.
Analysts polled by FactSet had predicted earnings of 27 cents per share on revenue of $82 million.
Revenue at stores open at least a year is expected to drop 7 percent to 9 percent. Body Central's previous forecast was for a 5 percent to 7 percent decline.
This figure is a key indicator of a retailer's health because it excludes results from stores recently opened or closed.
For the full year, the Jacksonville, Fla. company now foresees earnings of $1.07 to $1.11 per share on revenue in a range of $323 million to $328 million. Body Central previously predicted earnings of $1.34 to $1.38 per share on revenue of $333 million to $337 million.
Wall Street expects earnings of $1.35 per share on revenue of $335.4 million.
The company now anticipates that revenue at stores open at least a year will fall 4 percent to 6 percent for the fiscal year. Its prior outlook was for a 1 percent to 3 percent decline.
Source: AP via Yahoo! Finance; Body Central plunges after cutting forecasts
Clearly the news is bad, but I must say the reaction to the news today seems a bit abrupt. In totality the company revenue has gone from a projection of $86.6 million to now $77 million (for the second quarter). The fear seems to be two -fold:
1. Same store sales went from an expected improvement to a worsening (negative growth).
2. The second quarter numbers / projections from management seem a bit flighty. Or, in English, management's sales visibility seems quite poor.
On the vol side, we can see how much the implied has risen today. I've included a second chart with just a three month window and just the IV30™, to better demonstrate the vol move today.
Note that after the earnings release, vol came in (down), which is normal even if it's bad news. In a sense, the news is now known, so there is less risk. But, today's announcement has exploded vol over 165% higher. There is no comfort in management's disclosure today -- no sense that "now the bad news is known." In fact, the options now reflect more than twice the risk after this disclosure. That's highly unusual and points to a great deal of mistrust in the accuracy of forecasts moving forward.
Let's turn to the Skew Tab to examine the month-to-month vols.
We can see that Jul and Aug have essentially identical shapes, but that Jul is substantially elevated to Aug. In English, the option market reflects considerably higher risk in the near-term than the intermediate -- almost like the market is holding its breath for another surprise disclosure.
--- SUMMARY --
Finally, let's turn to the Options Tab, for completeness.
Across the top we can see that Jul is priced to 117.43%, while Aug is priced to just 85.92%. It's note worthy that before today, the 52 wk high in IV30™ was just 66.96%. That number helps put the Jul and Aug vols into context, which is to say, one is high, the other is really really high.
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--- DISCLAIMER --
This is trade analysis, not a recommendation.