Stage Stores Shares Plunged: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of clothing retailer Stage Stores (NYS: SSI) were getting dressed down by investors today. Shares fell as much as 18% in intraday trading after the company reported second-quarter earnings.

So what: Stage's second-quarter results didn't look quite as bad as the big stock drop suggested. Revenue for the quarter clocked in at $353 million, shy of the $354 million that Wall Street was expecting. However, earnings per share of $0.29 matched expectations. Notably, though, the 7% year-over-year growth in per-share profit was driven entirely by the company's share buybacks. Net income actually fell 3% from 2010, while share count declined 10%.

In the end, soft revenue numbers and lack of growth in total profit, combined with the very pessimistic market environment today may have come together in a perfect storm to capsize Stage's stock today.

Now what: Stage's guidance for the third quarter suggests that the company will lose more than expected. However, the midpoint of full-year earnings-per-share guidance is above analysts' current estimates. Again, though, EPS will be boosted in a big way by the company's share buybacks.

At the midpoint of management's guidance, Stage's stock is currently trading at 11.7 times 2011 earnings. While the company doesn't wow me, the valuation is eye-catching and could warrant a closer look.

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