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Body Central -- >>> Body Central Is One Sale You'll Want To Check Out


Investopedia
June 25, 2012

Tickers in this Article » BODY, NWY, WTSLA, BEBE, RUE


http://www.investopedia.com/stock-analysis/2012/Body-Central-Is-One-Sale-Youll-Want-To-Check-Out-BODYNWYWTSLABEBERUE0625.aspx?partner=YahooSA#axzz1zTxW0bsd




It's time to go shopping. As of June 18, specialty retailer Body Central (Nasdaq:BODY) is down 65% year-to-date. Most of the damage to its stock price came May 4, dropping 48% after it announced its sales for the remainder of fiscal 2012 would be weak. Then on June 18 the company announced further reductions in its 2012 full-year guidance that sent its stock down another 49% to $8.20. In a little over a month it has shed $335 million in market cap. For all those adventurous risk takers out there, remember the old proverb: "It's always darkest before the dawn." Now get out there and buy, buy and buy some more!


Lack of Visibility

That's what the analysts call it when earnings guidance goes out the window because management has no idea when business is going to turn around. As recently as March 8, Body Central's management clearly had no inkling that business was about to fall off a cliff. Same-store sales were up 6.8% in the fourth quarter, which ended December 31,2011, and 11.3% for the entire 2011. Net revenues increased 20.4%, operating income increased 61.7% and net income per share increased over 100%. As CEO Allen Weinstein stated in its Q4 press release: "We closed 2011 with strong sales and earnings growth in the fourth quarter." You can't get more upbeat than that. So what happened between then and now?

Whatever the company bought for its summer inventory clearly isn't working and that's increased the rate of decline for same-store sales for the remainder of the year. In the first quarter, same-store sales declined 1.4% against a very strong 16.1% increase in the previous year. Yet, Body Central's net income stayed almost constant in terms of margin. Unfortunately, as a result of promotional selling, its earnings per share will be about 20% less than originally expected. Clearly, the margins couldn't be held with all the excess inventory. Analysts see blood in the water and are speculating that earnings could drop below $1.07 a share if this lack of sell-through keeps up. Weinstein suggests it will get better in the fourth quarter. If you do buy, be prepared for one more jolt before moving upward.

IPO Comparison

Canadian billionaire money manager Stephen Jarislowsky believes you can do better by buying a stock one or two years after its initial public offering. Body Central went public in October 2010 at $13 a share. Four months later it did a secondary offering at $16.50 a share. Private equity firm WestView Capital Partners sold approximately 61% of its shares in those two offerings and most likely unloaded the rest at prices well above $16.50. Twenty months in from its initial public offering, you are now able to do what Jarislowsky says you should do, and that's buy it for less.

In 2010, Body Central made $9.8 million on $243.4 million in revenue for a net margin of 4.0%. Fast-forward to 2012. Should it hit the lower end of its earnings and revenues guidance, BODY's net margin will be 140 basis points higher than in its IPO year despite possessing declining rather than increasing same-store sales. Further, it went public with a P/E of almost 18 and a P/S of 0.71 compared to a forward 2012 P/E of 7.8 and P/S of 0.43. At $1.07 in earnings in 2012, if you subtract out the $2.75 in cash per share, you're essentially paying $5 for every $1 in earnings. That's better than most of its similarly sized peers.


Bottom Line

Body Central will spend approximately $10 million opening 35 stores in 2012. With $44 million in cash, it better be buying back shares at this point regardless of whether the stock price falls some more. Although I'm not a fan of share repurchases - this begs for action.

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