CONFERENCE CALLS

None

FOOL PLATE SPECIAL

Baby Superstore's Abysmal Quarter

BABY SUPERSTORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSST)") else Response.Write("(NASDAQ: BSST)") end if %> strangely rose $1 3/8 to $16 after what could only be described as one of the worst quarters for a specialty retail chain ever. The firm released delayed results last night that were abysmal, losing $0.61 EPS on a 59% increase in revenues due to two massive inventory charges, totaling $21 million smackers. Anemic same-store sales growth of 0.4%, combined with some analysts' pretty skeptical take on management's competence, made for a really tough conference call this morning. The upward move today can really only be attributed to value investors' will, high risk tolerances and short-covering.

The management's stated problem was inventory. The company took two inventory charges, of $12 million and $9 million respectively, in the quarter, which represented the bulk of the loss. The $12 million loss came from a new financial inventory system the company put in place in the quarter. Apparently, it discovered during the audit that physical inventories were about $12 million short, at cost, of levels it had previously booked, necessitating a charge. Where did the inventory go? Actually, management is not quite sure, which is the problem. While some of the inventory loss may have occurred in earlier periods, the company allocated it all to the second quarter just to clear the books.

The $9 million charge came from excessive markdowns on the company's national and private labels, mainly on spring and summer apparel and shoes, as well as a previously-announced initiative to reduce stock-keeping units (SKUs) at its stores. Basically, BSST got mashed on apparel by strong competition and, on top of that, it was dumping a bunch of products it used to keep in inventory, at bargain basement close-out prices. Although it is tough to see why all of this should be classed as a charge, and not go into the bottom line, this is a further indication of poor inventory management and potentially strong competition emerging from other retailers.

The company stated that comparable store sales were adversely impacted by the effects of opening new stores in existing markets and by efforts to reduce inventory levels. The fact that Babies R' Us seems to be doing very well competing against Baby Superstore, and is planning on opening three new units in the Atlanta market alone, was something that management was apparently not ready to discuss during the call. Although a lot of the inventory stuff is water under the bridge, the management that created the situation is still present, prompting one analyst to ask whether or not they knew what they were doing, and if the board should replace them. The only positive that can be seen right now is the valuation, which has the company selling for about 1.3 times working capital... though this is only about 0.8 times sales, still pretty high for a retailer.

UPS

Remote access technology provider SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHVA)") else Response.Write("(NASDAQ: SHVA)") end if %> rose $2 7/8 to $51 1/8 today after the firm announced it was initiating a program to have its products sold by value-added retailers. Apparently, the firm has not used the indirect sales channel that much.

SODAK GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SODK)") else Response.Write("(NASDAQ: SODK)") end if %> is surging as yesterday's deal with the Brazilian Soccer Federation to operate electronic gaming in that country continues to excite investors, who have bid the stock up $2 1/4 to $45 1/4.

Apparently the heart-stopping drop in the value of COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> shares has H&R BLOCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %> rethinking plans to spin the unit off. The stock rose $15/16 to $13 1/4 after Block pulled the spin-off vote from the annual meeting agenda.

CABLE DESIGN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDTC)") else Response.Write("(NASDAQ: CDTC)") end if %> continued to cruise ahead on momentum from yesterday's positive news, rising $4 3/8 to $34 1/2. The firm announced blow-out revenues and earnings yesterday.

A scrap is developing between the Southeastern Edition of the Wall Street Journal and MEDCATH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCTH)") else Response.Write("(NASDAQ: MCTH)") end if %>. The medical device firm disagreed with a negative article in the Journal today in a press release, but popped up $3 to $16 1/4 in spite of the bad press. A Piper Jaffray upgrade from "buy" to "strong buy" probably didn't hurt.

HANNAFORD BROTHERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRD)") else Response.Write("(NYSE: HRD)") end if %> earned the prestigious distinction of Merrill Lynch "Churn Your Client's Account Stock of the Week" when the New England supermarket operator was raised from "accumulate" to "buy" by the firm, jumping $1 1/2 to $33 3/4.

Shares of medical equipment manufacturer CARDIOTHORACIC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTSI)") else Response.Write("(NASDAQ: CTSI)") end if %> continued to surge this morning, up $1 7/8 to $16, on yesterday's news that COLUMBIA/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> will use one of the company's heart products.

UNIVERSAL OUTDOOR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UOUT)") else Response.Write("(NASDAQ: UOUT)") end if %> surged $5 to $30 3/4 after it announced it was going to acquire privately-held Outdoor Advertising Holding Inc., continuing the consolidation of the billboard industry.

Another billboard advertising concern, LAMAR ADVERTISING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LAMR)") else Response.Write("(NASDAQ: LAMR)") end if %>, got the nod from Smith Barney this morning. The brokerage initiated the stock with a "buy" rating and, incidentally, co-managed the company's recent public offering. Lamar was up $3 to $28.

SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %> was shining this morning, up $3 3/16 to $56 15/16 after the computer hardware and software company announced that it plans to quadruple its Latin American business over the next few years. Oh -- and Alex. Brown raised its calendar 1996 earnings estimates for Sun from $3.00 to $3.10 and those for calendar 1997 from $3.61 to $3.75.

FIRST MISSISSIPPI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRM)") else Response.Write("(NYSE: FRM)") end if %> surged $3 1/4 to $27 1/4 after the chemical firm announced that MISSISSIPPI CHEMICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MISS)") else Response.Write("(NASDAQ: MISS)") end if %> will buy its fertilizer operations for $297 million in stock and assumed debt. First Mississippi will spin-off its nonfertilizer operations.

DOWNS

GARDEN BOTANIKA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GBOT)") else Response.Write("(NASDAQ: GBOT)") end if %> plunged $2 5/8 to $10 5/8 after reporting a much wider than expected loss on a 70% increase in revenues. Weak same store sales for the botanically-based cosmetic and personal care concern were partially to blame.

Profits have been skating away from FIRST TEAM SPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FTSP)") else Response.Write("(NASDAQ: FTSP)") end if %> according to a press release this morning, dropping the stock $1 3/8 to $8 3/8. Lower than expected second quarter earnings are expected due to competitive pricing.

SPECIAL DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDII)") else Response.Write("(NASDAQ: SDII)") end if %> dropped $3/4 to $15 1/4 despite the fact that the pyrotechnic device manufacturer reported quarterly earnings in line with consensus estimates of $0.28 EPS.

The collapse of State Street Capital Corp. continues to impact the small firms it has taken public over the past few months. FUN TYME CONCEPTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FUNTU)") else Response.Write("(NASDAQ: FUNTU)") end if %> plunged another $3 1/2 to $3 /12 after a similar drop yesterday.

STEIN MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SMRT)") else Response.Write("(NASDAQ: SMRT)") end if %> slipped $1 1/4 to $22 7/8 after news broke that the company's chief executive has filed to sell 3.2 million shares, dropping his effective holding of the company from 59% to 44%.

Randy Befumo (MF Templar), a Fool

Selena Maranjian (MF Selena) another Fool