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(Best) WSM, WCRX, CHIC (Worst) DY, SIGM, HLF from Better Trades

September 1, 2009

Stocks drifted throughout much of the week, as positive economic news did little to stimulate buyers. Although the Dow posted gains over the past eight trading session, prior to its down day on Friday, investors remain cautious about making bigger obligations to stocks without convincing confirmation of an economic recovery.

Top 3 Stocks

WSM – Williams-Sonoma Inc. ($14.85 to $19.18) +29.2%

Headlining the list of companies that posted solid gains over the past week is Williams-Sonoma Inc. (WSM), a leading specialty retailer of diverse products for the home. The company sells their products through three retail concepts: Williams-Sonoma, Pottery Barn and Hold Everything. Over the course a week, the company’s share price surged nearly 30%, due in large part to the company’s upward adjustment of upcoming 3Q earnings.

The past week also revealed the company’s 2Q earnings results, which showed Williams-Sonoma’s profits plummeted during the period, falling from $18.4M, or $0.17 per share a year ago, to $399K, or breakeven per share. WSM was greatly affected by lower sales totals from underperforming stores, as well as from one-time charges amounting to $0.05 per share.

Revenues during the quarter retreated from $819.6M to $572.1M, a decrease in sales of 18% year-over-year. A key factor to the lackluster report was the company’s same store sales figures plunging more than 15% over last year’s results.

On average, analysts within the industry were looking for the home décor retailer to record a quarterly loss in earnings of $0.09 per share on overall sales totals of $658.3M.

Commenting on the company’s quarterly performance report was Howard Lester, Chairman and CEO, "Substantially better-than-expected earnings in the second quarter were primarily driven by stronger than anticipated merchandise margins and ongoing cost containment initiatives. These results, in addition to a 21% year-over-year decline in merchandise inventories, contributed to a $127M increase in our cash balance to $165M."

With earnings coming in ahead of market expectations, as well as consumer spending picking up a bit in the second half of the year, Williams-Sonoma increased their projections for the upcoming 3Q and full-year results.

For the 3Q, WSM is looking to post profits between $0.01 and $0.05 per share on sales of $660M to $700M. The company previously stated a range between a loss of $0.02 and a loss of $0.08 per share, with sales coming in between $650M and $690M.

As for fiscal 2009, WSM is predicting annual earnings between $0.19 and $0.31 per share, with yearly revenues coming in between $2.84B and $2.94B. WSM previously stated an earnings range between a loss of $0.07 and a profit of $0.11 per share. Annual sales totals are projected to come in between $2.81B and $2.94B.

Analysts are anticipating a 3Q loss of $0.06 per share on sales of $667.9M, while projecting a profit of $0.04 per share based on revenues of $2.87B for the entire year.

With a weekly gain of more than $4 per share heading into the final trading session in August, Williams-Sonoma’s stock reversed direction by the close of trading, falling $0.05, or 0.2%, to settle at $19.13 per share. During the past 52 week, shares of WSM have traded as high as $20.50 and as low as $4.35 per share.

WCRX – Warner Chilcott PLC ($16.06 to $20.65) +28.6%

Included in the list of top percentage performers is Warner Chilcott PLC (WCRX), a leading specialty pharmaceutical company primarily focused on the women's healthcare and dermatology segments of the U.S. pharmaceutical market. The company’s stock surge during the week was a direct result of news that Warner Chilcott initiated a bid of $3.1B for Procter & Gamble Co’s (PG) prescription drug business.

If the deal goes through, Warner Chilcott is in position to boost their portfolio worth an additional $2.3B in annual sales. The biggest gem from the deal includes the top-market selling osteoporosis drug Actonel. Actonel alone showed annual sales of nearly $1B, outpacing Warner Chilcott's yearly revenues of $938M in 2008.

Roger Boissonneault, President and CEO stated, "The acquisition of the P&G pharmaceutical brands and employee talent is a transformational, strategic move for us. The acquisition transforms Warner Chilcott into a global pharmaceutical company, expands our presence in women's healthcare, establishes us in the urology market in advance of the anticipated launch of our erectile dysfunction treatments, and adds gastroenterology therapies to our product portfolio."

Warner Chilcott CFO Paul Herendeen later remarked, "We view the fact that the company was able to go out and secure financing commitments from a group of six high-quality financial institutions on what we believe are good terms and enable us to do this deal is quite an accomplishment, particularly in light of the way the market has been over the last, let's say six to nine months or more. Right out of the chute, we expect this to be accretive for our shareholders."

The six lenders, led by Bank of America Corp (BAC) and JPMorgan Chase & Co (JPM) are said to be on the hook for $4B in financing, including $1B to refinance the company’s current outstanding debt obligations. The financiers also include Credit Suisse Group (CS), Citigroup Inc. (C), Barclays PLC (BCS) and Morgan Stanley (MS).

Following Warner Chilcott's announcement on August 24, the stock surged more than 27% by the end of the day, and more than 9% the following day. The rest of the week would see the stock revert lower, ending the trading week at $20.65, but only after hitting a yearly high of $22.94 per share on the day of announcement.

The start of the new week began unfavorably for the stock, slipping $0.28, or 1.4%, to end the August 31 session at $20.37. In addition to reaching a new 52-week high last week, the stock has also traded as low as $9.24 per share over the course of a year.

CHIC – Charlotte Russe Holdings Inc. ($13.79 to $17.35) +25.8%

Rounding out the top three gainers of the week is Charlotte Russe Holdings Inc. (CHIC), a rapidly growing mall-based specialty retailer of fashionable, value-priced apparel and accessories targeting young women between the ages of 15 and 35. The company, through their fashion content, merchandise mix, store layout and merchandise presentation, projects fashion attitudes that appeal to customers from a broad range of socioeconomic, demographic and cultural profiles.

With the stock surging nearly 26%, or $3.56 per share, Charlotte Russe witnessed the increase due largely to the company’s recent agreement to be purchased by the private equity firm Advent International Corp. in a cash-for-stock deal.

Advent has tendered an offer to buy all of CHIC’s common shares, as well as the associated preferred stock rights for $17.50 per share, estimated at more than $380M. Charlotte Russe is looking to sign the deal on August 31, and have it finalized within 20 business days following the signing. The offer was originally tendered on August 24.

Jennifer Salopek, Chairman of Charlotte Russe, commented on the merger agreement, "This transaction represents a premium of 255% over Charlotte Russe's closing share price on January 21, 2009, the day we announced we were exploring strategic alternatives, a premium of 169.6% over our closing share price on March 11, 2009, the day before we announced we were pursuing a sale process, and a premium of 26.9% over our closing share price on August 21, 2009, the last trading day before the merger agreement was signed."

In November 2008, the company rejected a takeover offer by investment firms KarpReilly and H.I.G. Capital, which, at the time, angered many of the company’s shareholders. The recent deal will most likely take the company from a publicly traded company to a private one.

Following the announcement, shares of CHIC jumped 26% during the August 24 session, adding $3.59 to close at $17.38 per share. For the remainder of the week, the stock barely moved and ended the week at $17.35 per share.

At the start of the new trading week, shares of Charlotte Russe inched higher, prior to the finalization of the agreement, adding $0.04, or 0.2%, to conclude at $17.39 per share. During the past year, shares of CHIC have traded as low as $3.98 per share, with a high of $17.41 per share, reached on August 24.

Worst 3 Stocks

DY – Dycom Industries Inc. ($14.08 to $11.52) -18.2%

On the other side of the markets, one of the leading stocks to post substantial losses throughout the week was Dycom Industries Inc. (DY), a provider of specialty contracting services throughout the U.S. Dycom’s services include engineering, construction, maintenance and installation services to telecommunications providers, underground locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric utilities and others.

During the past week, the company’s stock should have advanced following results from the 4Q, yet did not due to Dycom’s dismal outlook for the upcoming 1Q. Results from the 4Q showed that Dycom’s profits for the period surged from $3.1M, or $0.08 per share a year ago to $6.6M, or $0.17 per share, more than doubling last year’s totals.

However, the company’s quarterly sales totals slipped year-over-year, falling from $322.1M to $269.7M, a drop in revenues of more than 16%. Analysts, on average, were looking for the telecommunication contractor to post quarterly earnings of $0.15 per share on total sales of $273.9M.

For the full-year, the company recorded a loss of $53.2M, or $1.35 per share, in sharp contrast to the previous year’s profit of $21.7M, or $0.54 per share. Dycom’s overall sales decreased year-over-year as well, falling from $1.23B a year ago to $1.11B, a drop in annual sales of nearly 10%.

The devastation to the stock’s price came from Dycom’s upcoming 1Q revenue outlook, in which the company stated that sales would come in flat or down sequentially from the previous quarter. Analysts, in the meantime, are projecting 1Q revenues to come in at $284.5M.

In va positive piece of news following the company’s guidance projections, FBR Capital Markets analyst Alex Rygiel announced, "We continue to believe that investors will come back to the shares of Dycom Industries." In addition, Rygiel raised his target price on the stock from $15 to $20 per share, a potential upside of more than 40% from its closing price of $12.24 on August 26.

With the stock falling more than 18% in market price, the August 31 session brought much of the same, as shares of DY slipped more than 2% by the close, falling $0.30 to end the day at $11.22 per share.

Over the past year, shares of Dycom have traded as low as $3.64 per share and as high as $17.13 per share. Since the start of 2009, shares of DY are up more than 70%.

SIGM – Sigma Designs Inc. ($16.56 to $14.40) -13.0%

Losing 13% of their stock’s price during the course of a week, Sigma Designs Inc. (SIGM) saw their share price dip following the company’s 2Q earnings report, as well as announcing a bleak outlook for the upcoming 3Q. As a designer, manufacturer and marketer of multimedia products for use with personal computers, Sigma Designs’ stock lost more than $2 per share during the week.

With the company’s quarterly results released, SIGM posted a profit of $4.8M, or $0.18 per share during the 2Q, down 50% from last year’s profits of $9.6M, or $0.35 per share. Excluding one-time charges, Sigma would have posted a net profit of $0.28 per share, in-line with market expectations.

Revenues, in the meantime, slipped from last year’s results, falling from $58.2M to $51.3M, a decrease in sales of nearly 12% year-over-year. Analysts were looking for quarterly sales from the company to come in at $51.5M.

CEO Thinh Tran commented on the company’s recent results, “The Company believes its main markets have shown continued stability in the face of a difficult economy." Tran later added, “We are continuing to pursue consumer opportunities on multiple fronts, including Blu-ray players, digital media adapters and home entertainment connectivity devices."

Despite the decline in 2Q profits, the company issued their forward-looking profit projections for the upcoming 3Q, in which the company’s revenues if expected to come in below 2Q results. If so, sales should come in between $46.2M and $48.7M, a decrease in revenues between 5% and 10% from $51.3M in the 2Q.

In the meantime, analysts within the industry are looking for the chip designing company to post quarterly sales of $53.4M.

Following the company’s earnings and guidance release on August 26, shares of SIGM dropped 7% to close the session at $15.93 per share. During the remainder of the week, shares continued to lose ground, falling an additional $1.53 to end the week at $14.40 per share.

Heading into the first trading session in September, the company’s stock resumed their downward trek, closing Monday’s session down nearly 2%, or $0.27, to finish at $14.13 per share.

HLF – Herbalife Ltd. ($32.79 to $30.72) -6.3%

Finishing the list of top percentage losers for the week ending August 28 was Herbalife Ltd. (HLF), a global network marketing company offering a range of science-based weight management products, nutritional supplements and personal care products intended to support weight loss and a healthy lifestyle.

With not much news pushing the company’s stock in either direction, Herbalife did reveal last week that the company closed on a deal to purchase a manufacturing plant owned by Micelle Laboratories. In order for Herbalife to increase production levels, the company is planning to invest upwards of $10M into the facility over the next couple of year, while overall numbers for the actual purchase were not revealed.

Micelle Laboratories is a maker of food and nutritional supplements in powder, liquid, tablet and capsule forms and is based in Orange County, California.

In early August, Herbalife released their 2Q earnings report, which showed that the company’s profits dwindled year-over-year. For the quarter, HLF recorded net earnings of $48.3M, or $0.77 per share, compared to the prior year’s earnings of $67.1M, or $1.01 per share.

Sales for the period slipped from $6398.7M to $571.8M, a decrease in revenues of more than 10%. For the upcoming 3Q, the company offered their projection following their 2Q report, in which the company expects earnings for the upcoming period to come in between $0.66 and $0.69 per share.

During the past week, shares of HLF slipped more than $2 per share, losing more than 6% of their market value. Heading into the close of the August 31 session, shares of Herbalife continued their downward trend, losing $0.44, or 1.4%, to conclude the day at $30.28 per share.

Over the course of a year, Herbalife’s stock has traded as high as $48.44 per share and as low as $12.12 per share.

2009 Better Trades Article

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BRIAN MULLIN