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- 2012 - November - 5th -

Body Central looks for new warehouse, and maybe a new headquarters

by Mark Basch, Contributing Writer

Body Central Corp. is still trying to turn its sales trends around after two very bad quarters.

But while the Jacksonville-based fashion retailer works on fixing short-term trends, it’s also looking to future growth.

During the company’s quarterly conference call Thursday, interim CEO Tom Stoltz said the company is making investments in the future with new systems.

He also revealed for the first time that Body Central is negotiating a lease for a new distribution center, a development that raises questions about the future of its headquarters offices.

Stoltz said the company is in “final stages” of negotiating a lease on a new distribution center that is targeted to open in the third quarter of 2013.

He said Body Central needs the new warehouse to accommodate its growing store network, which currently numbers 267 in 24 states, and its catalog and online sales division.

However, Stoltz didn’t say where the new warehouse will be. When an analyst asked if the company might choose a more central location than Jacksonville, like Ohio, he wouldn’t say.

“We’ve done a pretty thorough study and we can’t really tell you the answer yet, but we’ll be happy to when we make that decision,” he said.

Body Central’s current distribution center, along with its headquarters, is in a 179,000-square-foot facility on Powers Avenue on Jacksonville’s Southside. The warehouse takes up 146,000 square feet of the building.

Since the offices are attached to the current distribution center, it’s logical that the company also could move its headquarters when it opens the new center, but Stoltz is not saying.

“We have made no definitive decisions about the DC or the office other than we will need a new DC due to growth,” he said in response to an email inquiry.

In a follow-up email asking if the company is considering moving its headquarters out of Jacksonville, Stoltz responded: “We have made no decisions yet about our office plans.”

Body Central intends to operate both its current warehouse and the new distribution center concurrently for at least some transition period once the new facility opens.

“Our current lease in our existing facility does not expire until October 2016, so we have some flexibility with the transition timing and with a potential office relocation,” Stoltz said in the email.

Another complication in the decision is Body Central has not yet decided on a permanent CEO.

Stoltz, who also is chief operating officer and chief financial officer, took over as interim chief executive in August when Allen Weinstein resigned.

You would have to expect the permanent CEO will have a say in where Body Central ultimately locates its headquarters.

Body Central earnings meet expectations

Body Central’s earnings report contained no real surprises. Adjusted earnings of 3 cents per share, down from 19 cents a year earlier, matched the average forecast of analysts surveyed by Thomson Financial.

Total sales rose by 1.2 percent to $67.9 million but comparable-store sales (sales at stores open for more than one year) dropped 11.9 percent.

Comparable-store sales are a key measure used by analysts to gauge the performance of retailers.

Body Central projected fourth-quarter earnings of 19 cents to 22 cents a share, but comparable-store sales are expected to fall by 11 percent to 14 percent.

Investors unhappy with LPS outlook

When public companies release their quarterly earnings reports, they nearly always do it late in the afternoon after the stock market closes or early in the morning before it opens.

That gives investors a chance to digest the news and avoids knee-jerk reactions in the market.

When Jacksonville-based Lender Processing Services Inc. released its earnings report last week, investors had nearly two full days to digest the report, and they apparently didn’t like what they saw.

LPS released the report late Monday afternoon and held its conference call with analysts to discuss the results Tuesday morning, two days when the markets were closed. When trading resumed Wednesday, LPS’ stock dropped $3.22 to $24.11.

LPS reported third-quarter earnings from continuing operations of 71 cents a share, up 18 cents from last year but a penny below the average forecast of analysts surveyed by Thomson. Revenue fell 1.3 percent to $512.7 million.

“While results were in-line with street expectations, we believe many investors were expecting a beat in the quarter given how resilient the refinancing market has been,” said Kevin McVeigh, analyst at Macquarie Capital, in a research note.

LPS, which provides technology services for mortgage lenders, also forecast fourth-quarter earnings of 65 cents to 69 cents a share and revenue of $475 million to $495 million. Analysts were expecting earnings of 69 cents and revenue of about $503 million, according to Thomson.

“We remain cautious on LPS given the lackluster guidance coupled with the underwhelming housing market and continued declines in foreclosure filings,” said McVeigh, who maintains an “underperform” rating on the stock.

Goldman Sachs analyst Julio Quinteros downgraded LPS from “buy” to “neutral” on Thursday.

“We now anticipate substantially lower refinance and default volume growth in calendar year 2013 as refi strength from calendar year 2012 is not expected to repeat and default volumes should be further delayed by new rules in 2013,” Quinteros said in his research note.

After Wednesday’s price drop, Quinteros said the stock was trading at only 8.9 times his 2013 earnings estimate and with his price target of $26, there is “some potential for upside,” he said.

However, “in our view this is not enough to warrant a more positive recommendation on LPS shares as the growth profile into 2013 is now negative given the more significant headwinds presented by lower refinance volumes and default volume visibility,” he said.

D.A. Davidson & Co. John Kraft maintains a “neutral” rating.

“On the positive side, uncertainty regarding the company’s substantial regulatory and legal pressures is lessening, albeit slowly. On the negative side, industry trends look incrementally worse in 2013, setting the company up for a tough year,” Kraft said in his report.

“At the end of the day, management has done a great job regarding costs and the company has significant earnings power,” he said.

No additional legal costs for LPS

In addition to announcing earnings Monday, LPS also announced a settlement with the Colorado Attorney General’s Office over its investigation of the company’s role in the nationwide foreclosure mess.

LPS has been under investigation for more than two years by federal and state authorities over allegations that one of its subsidiaries falsified documents used in foreclosure proceedings.

“We have now settled three state attorney generals’ inquiries and we continue to have ongoing discussions to address remaining matters,” Chief Financial Officer Thomas Schilling said in Tuesday’s conference call.

Schilling said LPS still has $196 million in reserves set aside to cover possible legal costs from the foreclosure investigations, money that was set aside in previous quarters.

“After assessing all open matters, we concluded that no change was necessary to the reserve in the third quarter. We will, however, continue to assess as we move forward. Resolving the issues related to past practices in a manner that is in the best interest of our company, our customers, our shareholders and our employees continues to be one of our top priorities,” he said.

Schilling was filling in on the call for President and CEO Hugh Harris. The company announced two months ago that Harris had undergone surgery for a treatable form of cancer.

“Due to his continuing treatment, he’s unable to participate in today’s call. He is, however, listening in. His treatments are going well and the prognosis remains extremely positive. He is in his last week of treatment, and we are all looking forward to having him back full-time very soon,” Schilling said.

Allstate sees little Sandy impact

Major natural disasters should be bad news for insurance stocks, but Hurricane Sandy had little impact on Allstate Corp.

Allstate actually released its third-quarter report Wednesday after the market reopened and reported strong earnings of $1.48 a share, well above the average Thomson forecast of $1.18.

CEO Thomas Wilson said the company does not expect Sandy to hurt the company.

“It’s too early to estimate the impact of Hurricane Sandy on Allstate’s fourth quarter earnings. However, this catastrophe is not expected to have a material impact on Allstate’s overall financial condition. Allstate is amply well-capitalized to meet its obligations to policyholders,” Wilson said in a news release.

CSX could be hurt by Sandy

One Jacksonville-based company that could see its fourth-quarter results impacted by Sandy is CSX Corp., after the storm forced it to shut down its railroad operations in the affected areas.

Dahlman Rose & Co. analyst Jason Seidl said in a research note that the two major Eastern U.S. railroads, CSX and Norfolk Southern Corp., will need time to return to normal.

“Even when service does resume for the two Eastern carriers, they will have to contend with their customers’ issues to come back on line. As such, we believe full traffic levels will not resume for a few weeks,” he said.

Meanwhile, Regency Centers Corp. reported Thursday that its shopping centers in the storm areas suffered “only minor damage.”

Also, Stoltz said in Body Central’s call that about 50 of its stores were affected by Sandy but the impact is expected to be “insignificant.” The company expects to lose less than $1 million in sales because of the storm.

St. Joe has profitable quarter

The St. Joe Co., which has lost money every year since 2008, last week reported one of its best quarters in quite a while.

The real estate developer reported third-quarter net income of $15.3 million, or 17 cents a share. Revenue of $55.9 million was about double the revenue of the third quarter of 2011.

St. Joe’s results were helped by $18.3 million in revenue from two rural land sales. The company also benefited from increased timber sales, as it opened more of its property to timber harvesting, and an increase in residential real estate sales. However, the company still only sold a total of 58 residential units in the quarter.

Convergys beats forecasts

Convergys Corp. reported third-quarter earnings of 26 cents a share, up from 19 cents last year and 5 cents higher than the average Thomson forecast.

Cincinnati-based Convergys, which provides outsourced customer service functions and has a major call center in Jacksonville, also raised its earnings forecast for the full year to 89 cents to 92 cents a share. It had previously forecast 80 cents to 85 cents.

Still, Robert W. Baird analyst David Koning, who rates the stock at “neutral,” is cautious.

“We remain concerned that the company’s three largest clients continue to drive growth (second consecutive quarter where non-top-three client growth was flattish), as this will likely slow at some point (in fact, some evidence of slowing growth at AT&T and Comcast this quarter),” Koning said in a research note.

DirecTV is the third major client of Convergys.

Stein Mart sales up again in October

Stein Mart Inc. last week reported total sales for the four weeks ended Oct. 27 rose 1.7 percent to $87.2 million and comparable-store sales also rose 1.7 percent.

The Jacksonville-based fashion retailer had 262 stores open at the end of October, the same number as last year.

Although sales are increasing, Stein Mart was looking for more.

“While we are pleased with our continued positive comparable store sales, we were disappointed that the robust comps we experienced during most of the month were diminished by sales being lower than planned during our significant 12-hour sales event,” interim CEO Jay Stein said in a news release.

“As previously stated, 12-hour sales are very costly because of their lower gross margin and higher store operating and advertising expenses. We continue to work towards downsizing their importance relative to our everyday regular price selling,” he said.

Stein Mart for the past year has been looking to reduce the use of coupons and special sales and focusing more on everyday low prices.

mbasch@baileypub.com

356-2466

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