Earnings Recap: Collective Brands (PSS), Lions Gate (LGF), Shanda Interactive (SNDA)
Earnings: Q1 profits of $0.83 vs. estimates of $0.75 and $0.59 for Q1 last year.
Revenue: Up 1.8% to $878.8 million vs. estimates of $888 million.
Management noted that, “Caris & Co., whose brands include Saucony, Sperry Top-Sider and Keds, benefited from early warm weather in the first quarter, which should have spurred sales of sandals, and from the toning trend.”
Comment: Shares of PSS, the company behind brands like Payless ShoeSource and Stride Rite, finished up the day down 3.7% before adding on another 9% in losses during after-hours trading. The company is now trading dangerously close to its flash-crash low of $19.50 and is below its 10, 20 and 50-day moving averages. In a market that is trending down, this is not the type of stock that you want to go long, or at least not without a tight stop. If you’re looking for some exposure to the Sneaker space, look to a quality name like Nike (NYSE: NKE). While it is not off it’s highs as much as PSS, it has still had quite a haircut, and has the kind of balance sheet that can weather the worst of times.
Lions Gate Entertainment Corp. (NYSE: LGF): Icahn’s not ready to say goodbye…yet.
Earnings: FY 2010 profits of $0.17 vs. $0.22 consensus.
Revenue: FY 2010 rev of $1.58 vs. $1.59 billion.
“Activist investor Carl Icahn said Tuesday he was extending his tender offer for Lions Gate Entertainment Inc. (LGF) for the sixth time and removing its minimum support level in anticipation of a possible proxy fight for control of the company this summer,” noted Dow Jones.
“We’re going to have a proxy fight, so we’re going to take all the stock we can get, and we believe we will get a substantial amount,” said Icahn.
Comment: If you haven’t heard about the drama between Icahn and LGF management, then you just haven’t been paying attention, as the two sides have had no qualms about taking their grievances public. This drama may soon come to a close though, as Icahn’s sixth extension may be the last he can put together before the annual shareholders meeting, after which some think Icahn will give up his quest to take over the downtrodden media company. Such thoughts were buoyed by his removal of the minimum share participation requirement, which had required 50.1% of voting shares to participate in his tender for it to be legitimized. Now, he may not believe that he can gain so many shares in one sitting.
Icahn’s offer stands at $7, so with shares closing Tuesday’s trade at $6.83, either going long or short at this point is a pure play on the potential (or lack thereof) for an acquisition. As such, don’t try getting behind shares on any kind of fundamental basis. But if you want to play some risk-arbitrage, LGF is definitely a candidate.
Shanda Interactive (NASDAQ: SNDA): Trading up following earnings and revenue miss.
Earnings: Q1 profits of $0.16 vs. estimates of $0.17.
Revenue: Up 9.9% to $167.5 million vs. estimates of $171 million.
Chairman and Chief Executive Alan Tan said that, “average monthly revenue per account for massively multiplayer games fell 21% from the previous quarter, while active paying accounts increased 2% sequentially.”
Comment: Chinese online video game developer SNDA makes most of its revenue off of MMORPG’s (think World of Warcraft-type games), a market that has seen significant growth in China. However, even though SNDA’s revenues were up 8% YOY, they were down 19% sequentially. Gross margins were also down to 59% from 60% for Q1 last year. But despite the lukewarm news, shares were able to tack a .5% gain onto a 2% gain during regular trade. This may be related to the fact that shares have fallen to nearly $40 after beginning the year close to $60. Chinese markets have been weak all year, and if you’re looking for a rebound in the market, SNDA is not a bad stock to get behind. But always remember, cut losses at 8%-10% to avoid suffering knockout blows.
Disclosures: No holdings in PSS, NKE, LGF, SNDA.