Thursday, July 10, 2008

Camouflaged Revisions and an Update

Same store sales figures were released today, and the Wet Seal (WTSLA) continues to do fine. It basically came in with in-line numbers (-2.9% vs -3.0% estimate). The Wet Seal division came in at -0.8%, and the laggard Arden B division came in at -10.7%.

There was a positive release today from the company. However, you wouldn't know it if you only read the headline reported by AP... Wet Seal lowers 2nd-quarter profit forecast.

So, it turns out there was a non-cash interest related charge due to investors converting debt in the form of notes into shares. I can't say I really understand all the nitty-gritty accounting details, but what I do know is that based on what was said in the actual press release, the company effectively boosted their earnings estimates. Excluding this extraneous interest charge, previous estimates were in the 0.08-0.10 EPS range, and now they have been upped to a range of 0.09-0.11. Analysts had a consensus of 0.09.

As a result of this, the Seal moves up higher. It traded above $5 for a good part of the day, closing at 4.98. Today's move is a really nice one considering almost all teen retailers saw their shares fall today... check out ANF, ARO, HOTT, etc.

And, for the quick update. I sold General Electric (GE) July $28 calls (GEWGB) for 0.67 covering the shares that I had added for the recent (losing) buy-write trade. The cost-basis of that lot of shares is $31.45, so that takes us down to $30.78. The company announces earnings tomorrow morning, and since I already hold a decent sized position, I figured I'd reduce my risk just a tad.

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