Galyans Saw Shares Fall 18% for the Week to close at $11.49 on Friday after the retailer warned on Wednesday that second quarter earnings would suffer from comp store sales that are now seen in the 8% to 10% range. The street jumped on the news with no fewer than five major firms downgrading the stock.
Goldman Sachs analyst Matthew Fassler said in a research note that GLYN’s earnings volatility is “surprising”. “Though weather is a reasonable root cause of shortfalls in this highly seasonal business, Galyan’s young average store age should give it an edge versus the competition,” Fassler said. He cut his investment rating on the company to “underperform” from “in-line.”
GLYN now sees second quarter sales in the $160 million to $164 million range and fully diluted earnings/loss ranging from a three cent loss to a one penny profit on a per share basis.
Galyan’s had issued guidance back on May 22 that the company “expects sales in the range of $171 million to $177 million, which assumes comparable store sales in the low single digit negative range. EPS on a fully diluted basis is expected to be between $0.16 and $0.22.” The company reported earnings of $3.9 million, or 22 cents per diluted share, in Q2 2002. Sales were $143.2 million.
CEO Bob Mang pointed to a highly promotional retail environment and unfavorable weather, “particularly in the Eastern U.S. and Midwest”, that “adversely impacted sales of water sports, swimwear, sandals and shorts”. Sales in casual apparel and footwear were weaker, but the retailer saw relief from “higher than expected sales in outerwear, hunting and bicycles”.
The result will be “greater than anticipated markdowns” in Q2, causing lower sales and gross margins. Inventory levels on a per store basis are expected to be below last year due to measures taken to limit risk there.
