The Motley Fool, 7/10/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

West Marine Sinking?

Same-store sales growth is one of the key measures of growth for retail stores. Unfortunately for the retailers, this number comes out once a month for many of them, and sometimes the financial markets can react very strongly to one new incremental piece of data. Take this morning's drop in shares of WEST MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WMAR)") else Response.Write("(Nasdaq: WMAR)") end if %>, down $7 6/16 to $17 3/16. The company must have put out a press release saying its earnings would miss estimates, right? Or that total sales growth was rotten because of the weather or somesuch, correct? Wrong on both counts. The stock is apparently getting pounding because investors did not like the same-store sales numbers the company reported this morning.

West Marine said this morning that June same-store sales only increased by 3.6%, continuing a negative trend. As June is one of the best months for the company, many investors are taking this news rather hard. Additionally, West Marine announced that total sales for the month increased 32.5% to $59.8 million from only $45.1 million a year ago. Any analysts who had built higher same-store sales growth into their "models" of the company's earnings are probably now saying the company will not meet their earnings estimates, explaining the severity of the selling. West Marine has been getting clocked for a months now after hitting its highs in August of 1996 as momentum-based investors fled the shares as growth cooled to a more reasonable (and sustainable) level.

A major retailer of boating and aquatic supplies, West Marine has pursued a high-growth strategy by acquiring competitors and building new units in attractive regions of the country. West Marine looks for a decent-sized marina in a well-populated area and makes sure that it has a store there. The concrete box affairs minimize expenses and maximize sales, generating a decent return on capital for a retailer over the first few months. As the only publicly traded specialty retailer focused on this niche, the company has been able to use its stock to gobble up competitors and post some really incredible sales growth for a vendor of boating supplies.

With almost two-thirds of its annual earnings coming in this quarter, it is no surprise investors are skittish. However, even if you trim fiscal 1998 earnings numbers to $1.20 per share from the current projections $1.44 per share, at around $17 the company is a retailer growing sales at 30% priced at only 14 times forward earnings. Unless investors think the market for boating supplies is going belly up or that West Marine has lost its touch and is bound for Davy Jones' locker, the stock may be interesting around this price.

UPS

Orlando-based AIRWAYS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %> gained $1 5/8 to $7 after agreeing to merge with VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %> in a 1-for-1 stock swap. The combined airline will keep the AirTran Airways name and jettison the irreparably damaged ValuJet name.

ZYTEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZTEC)") else Response.Write("(Nasdaq: ZTEC)") end if %> climbed $3 3/4 to $23 after the manufacturer of power supplies for devices such as routers said it expects to exceed by a significant amount Q2 EPS estimates of $0.31. In fact, the Minneapolis-based company expects to report EPS of $0.39 to $0.41.

Year 2000 conversion software company TSR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSRI)") else Response.Write("(Nasdaq: TSRI)") end if %> jumped $3 1/2 to $23 after introducing its Catch/21 conversion process, which the company claims will remediate a non-compliant system for $0.25 per line of code in one-third the time of other systems.

INVACARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVCR)") else Response.Write("(Nasdaq: IVCR)") end if %> added $1 7/8 to $24 1/2 after the company announced at Wheat First Butcher's Nantucket conference that second quarter sales increased by approximately 4%.

SAC TECHNOLOGIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SACM)") else Response.Write("(Nasdaq: SACM)") end if %> rose $1 1/4 to $13 3/4 after introducing three new versions of its fingerprint scanner.

Telecom access products company PREMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %> gained $1 1/2 to $19 after SoundView Financial upped its rating on the company to "buy" from "hold," estimating 1997 EPS of $0.48 and 1998 EPS of $0.39, according to Reuters.

ASM LITHOGRAPHY HOLDINGS NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> moved up $6 3/4 to $69 1/2 after yesterday announcing a $150 million order for wafer stepper systems from DRAM maker MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>.

Impotence treatment company VIVUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> rose $2 1/2 to $29 11/16 on reporting Q2 EPS of $0.28, beating estimates of $0.17. Quarterly revenues of $33.4 million rose 20% sequentially.

Synchronization systems and telecom equipment company SYMMETRICOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMM)") else Response.Write("(Nasdaq: SYMM)") end if %> gained $1 1/8 to $16 1/4 after yesterday announcing it is looking into strategic alternatives to building shareholder value.

MARVEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRV)") else Response.Write("(NYSE: MRV)") end if %> licensee TOY BIZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBZ)") else Response.Write("(NYSE: TBZ)") end if %> gained $1 5/16 to $9 5/16 after the company's management, including Carl Icahn, came to an agreement with both Marvel owners and its creditors, allowing the owner of Spiderman, X-Men, the Incredible Hulk, and the Fantastic Four to get on with making money and spend less time in bankruptcy court.

DOWNS

UROCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UCOR)") else Response.Write("(Nasdaq: UCOR)") end if %> lost $1 3/4 to $7 1/8 after the urology services company warned that it will miss Q2 earnings estimates of $0.10 per share and expects to report EPS of $0.06 because of below-forecast growth in its core diagnostics services business.

BRITISH BIO-TECHNOLOGY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBIOY)") else Response.Write("(Nasdaq: BBIOY)") end if %> dropped $5 1/4 to $27 1/8 on reporting a loss of $7.52 per share for fiscal 1997, below the loss of $1.05 per share estimated by the one analyst surveyed by First Call. The company also said its pancreatitis treatment is behind schedule.

Air cargo carrier ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %> descended $4 to $22 1/4 after Merrill Lynch jumped on the bandwagon and downgraded the shares to "neutral" from "accumulate." Merrill also lowered its long-term rating on the company to "accumulate" from "buy."

EXABYTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXBT)") else Response.Write("(Nasdaq: EXBT)") end if %> fell $1 3/4 to $12 1/4 after the tape storage device manufacturer reported Q2 EPS of $0.05, below estimates of $0.12, on year-over-year revenue growth of only 7.8%.

Software development tools company FORTE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRTE)") else Response.Write("(Nasdaq: FRTE)") end if %> slipped $1 1/8 to $11 on pre-announcing Q1 revenues of $14.5 to $15 million and a loss of $0.11 to $0.12 per share, below estimates of a loss of $0.06 per share.

IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFS)") else Response.Write("(Nasdaq: INFS)") end if %> dimmed $3 5/8 to $22 3/8 after the LCD projection devices manufacturer reported Q2 EPS of $0.44, just below estimates of $0.45. Prudential downgraded the stock to "hold" from "buy."

Computer direct marketer BLACK BOX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBOX)") else Response.Write("(Nasdaq: BBOX)") end if %> ticked down $2 1/2 to $36 3/8 as Q1 EPS of $0.39 was right in line with earnings expectations.

PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> slipped $1 3/8 to $16 7/8 after the telecom equipment manufacturer reported Q2 EPS of $0.16, below estimates of $0.18, on a 40% increase in revenues of $66.4 million. UBS Securities lowered its rating on the company to "hold" from "buy."

Women's apparel retailer ANN TAYLOR STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %> fell $2 5/8 to $16 1/4 on reporting a 5.8% decline in June same-store sales as well as a 3.8% decline in total June sales.

Home improvement retailer LOWES COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOW)") else Response.Write("(NYSE: LOW)") end if %> moved down $3 9/16 to $34 3/4 after reporting a 1% increase in June comparable store sales.

KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> was marked down $7/8 to $10 5/8 after warning that it expects Q2 EPS to fall compared with last year, meaning the broadline retailer will miss EPS estimates of $0.09 by at least 22%. Kmart also reported a 3.5% increase in June same-store sales.

On no apparent news, teleservices firms are taking hits today. SITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWW)") else Response.Write("(NYSE: SWW)") end if %> fell $15/16 to $16 17/16; APAC TELESERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APAC)") else Response.Write("(Nasdaq: APAC)") end if %> shed $1 11/16 to $14 3/8; and WEST TELESERVICES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTSC)") else Response.Write("(Nasdaq: WTSC)") end if %> lost $2 to $12 1/2.

CONFERENCE CALLS

MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
(402) 220-4831 -- replay available through 7/10

PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %>
(800) 633-8284 code 2854661 -- available through 6:00 p.m.

HELEN OF TROY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELE)") else Response.Write("(Nasdaq: HELE)") end if %>
(800) 275-2442 -- replay through 7/9

CANANDAIGUA WINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WINEA)") else Response.Write("(Nasdaq: WINEA)") end if %>
(800) 839-1153 (password: 1234) -- through 12:30 p.m. EDT on 7/10

HEILIG-MYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(Re: June sales and the purchase of Mattress Discounters)
(804) 254-3939 (option 1) -- replay

FOOL PORTFOLIO STOCKS

FOOL PORTFOLIO                  BORING PORTFOLIO

ATCT down $1/16 at $4 13/16    ATLS down $4 at $22 1/4
AOL down $1 3/8 at $67 1/16    BGP up $5/8 at $25 5/8
CHV down $1/4 at $74 1/8       CSL down $1/2 at $34 13/16
COMS down $9/16 at $52 1/16    CSCO dn $1 13/16 at $74 1/2
DJT up $3/16 at $10 1/4        GNT up $7/16 at $35 11/16
GM down $3/16 at $55 5/8       ORCL dn $1 11/16 at $50 5/16
INVX down $1 3/8 at $28 1/8    OXHP up $1 1/8 at $78 3/4
IOM down $1/4 at $20 7/16      PMSI up $1/4 at $11 3/4
KLAC down $1 1/2 at $52 3/4    TDW down $5/16 at $44 9/16
LU unch. at $76 1/16            
MMM unch. at $102 11/16
T down $3/4 at $34 7/8

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Randy Befumo (TMF Templr), a Fool
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Dale Wettlaufer (TMF Ralegh), another Fool
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Brian Bauer (TMF Hoops), and yet another Fool
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