Thursday Losers: Bed, Bath & Beyond, Nike and Sotheby's

David Sterman's picture

Thursday, June 24, 2010 - 11:07am

by David Sterman

Among the biggest losers in Thursday's early trading are Bed, Bath & Beyond (Nasdaq: BBBY), Nike (NYSE: NKE) and Sotheby’s (NYSE: BID).

Top Percentage Losers -- Thursday, June 24, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
Sotheby's (NYSE: BID) $25.90 -8.3% $46.52 $11.14
Nike (NYSE: NKE) $69.68 -3.9% $78.55 $50.16
Bed, Bath & Beyond (Nasdaq: BBBY) $39.87 -3.8% $48.52 $26.50

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:01AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.


A Bar too High

Shares of Bed, Bath & Beyond (Nasdaq: BBBY) are off nearly -3% on Thursday, thanks to unrealistically high investor expectations. The company reported very impressive fiscal first quarter results last night, and although management took a conservative stance with respect to the second-quarter outlook, investors had set a very high bar, hoping to see a very bullish forecast after rivals such as Pier One (NYSE: PIR) recently spoke in very optimistic terms.

Investors may be forgetting the fact that Bed, Bath & Beyond always establishes a low bar -- and then surges past it. The company has exceeded its own guidance by a wide margin in each of the past four quarters. To be sure, the recent growth snapback, which led to very sharp year-over-year profit gains, will probably cool now that the retailer is coming up against more robust prior comparisons.

Nevertheless, with the economy slowly on the mend, and rival Linen’s & Things out of business, Bed, Bath & Beyond is likely to settle into a very solid growth groove. Starting next year, look for sales to rise +7% to +10% annually and profits to grow around +15%.

Action to Take --> After today’s sell-off, shares trade for a very reasonable 13 times projected 2011 profits. This stock doesn’t possess massive upside, but like fellow retailer Best Buy (NYSE: BBY) is an industry dominator with a solid management team, lesser competition and a resonant brand. As investors realize that near-term guidance was intentionally too conservative, look for this stock to move back toward its 52-week high of $48.

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Nike stalls Out

When growth in a core market peters out, many companies go abroad in search of further growth opportunities. In Nike’s (NYSE: NKE) case, an expansion into Europe, then Latin America and more recently China helped to maintain impressive growth rates. Well, unless Nike can develop a sales base on the moon, its growth prospects here on earth may have finally petered out. The nation’s largest shoe-maker reported tepid sales growth on Wednesday evening, pushing shares down nearly -4% this morning. The company just completed a fiscal year that saw sales drop -1%. Sure, the global economy has been weak, but it was even weaker in the prior year.

Management sees Nike’s prospects as half full: “We finished strong with a great quarter and accelerating momentum across the business,” said the company’s president. He’s paid to provide a positive spin. Nike derives about 40% of revenues in North America, where sales fell -1% in the fiscal 2010. In Europe, where Nike garners an additional 20% of its business, sales fell -6%. Emerging markets outside of China and Japan were the only markets where growth was notably robust.

The good news: footwear wears out, and there is always a replacement cycle for shoes. The bad news: rivals are taking some market share. Nike’s still-strong brand cachet is no longer helping its products to garner the price premium they have historically enjoyed.

Action to Take --> During the coming fiscal year, sales should grow a little less than +10% as the company squeezes more growth out of its emerging markets initiative. Trouble is, expenses are likely to grow at a commensurate rate. To juice growth, Nike aims to build many more proprietary stores. But it’s unclear if those investments, and the ongoing expenses they will incur, will help move the bottom line. It’s hard to see major upside or downside for this stock, and investors can find better long or short candidates elsewhere.

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Sotheby’s seeks a Bid

Do I hear $32? $30? Am I bid $28? $27? $26.50---sold. That’s what you’d hear if shares of Sotheby (NYSE: BID) were put up at auction in recent sessions. Buyers have kept their paddle down on this name as investors fret over the company’s earnings results. Analysts have a very hard time forecasting quarterly results for Sotheby’s as earnings have either topped or lagged estimates during the past four quarters. The company’s sales commissions are directly tied to the volume of successful bids at its auctions. Right now, analysts anticipate very strong profits, which may push the risk toward the downside.

It’s worth noting that Sotheby’s counts on well-heeled European buyers to keep the bidding process lively. But these folks are dealing with an economic crisis and a weak currency right now. A just completed auction highlighted by some top European 19th century painters was said to be a dud, with little bidding activity.

Action to Take --> Keep an eye out for how much shares fall. If they move back below $20 on earnings concerns, investors should pounce as this is still one of the premier franchises in the auction business.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.