A disappointing forecast from Web.com Group Inc. last week sent the company’s stock tumbling for the third time this year.
The Jacksonville-based company, which provides website development services for businesses, reported third-quarter adjusted earnings of 63 cents a share, 8 cents higher than the previous year and 2 cents higher than the average forecast of analysts surveyed by Thomson Financial.
However, during the company’s conference call with analysts, Web.com provided a lower-than-expected forecast for the fourth quarter.
“While our third-quarter performance met our guidance, there are two dynamics negatively impacting our near-term growth outlook. This has caused us to lower our expectations for the fourth quarter,” Chairman and CEO David Brown said.
One dynamic is in Web.com’s domain name registration service, as an expansion of top level domain names beyond the traditional domains like “.com” and “.net” is having “a near-term negative impact on domain-related revenue,” Brown said. Apparently, the expansion has caused some businesses to hold off on buying new domain names.
The second dynamic had to do with marketing efforts for some services, including an offer to bundle services, which didn’t work as well as planned.
Web.com lowered its fourth-quarter revenue forecast by about $10 million to $137 million to $139 million and projected fourth-quarter earnings of 55 cents to 57 cents a share, lower than the average analysts’ forecast of 62 cents.
“We believe the market dynamics and execution challenges we are experiencing are short term in nature. Our longer-term outlook remains intact for driving meaningful revenue, profitability and free cash flow growth to create significant long-term shareholder value,” Brown said.
However, Wall Street was unforgiving. Web.com’s stock fell $5.53 to $14.72 Thursday, its lowest price in almost two years.
Web.com already had seen two other sharp drops in its stock price this year. The first came in June when a report that Google Inc. was beta testing a domain name registration service sent Web.com’s stock down by $6.90 to $27.70 in one day, as investors feared competition with Internet giant Google.
The second was in August after a disappointing second-quarter earnings report sent the stock down by $6.43 to $20.12.
After two disappointing earnings reports in a row, Brown was asked during last week’s conference call if investors might lose confidence in the company. He said Web.com’s transparency in discussing issues should ease their minds.
“We’re trying to be very transparent with the things that have affected us and how we’re approaching them,” Brown said.
Two analysts downgraded their ratings on Web.com’s stock Thursday. JPMorgan Chase analyst Sterling Auty downgraded the company from “overweight” to “neutral,” and Craig-Hallum analyst Mitchell Bartlett downgraded it from “buy” to “hold,” which is essentially the same thing.
Analyst Hamed Khorsand of BWS Financial Inc. already had a “hold” rating on the stock before last week’s report.
“We moved to the sidelines after the second-quarter results waiting for some improvement in the business before stepping in, and remain on the sidelines,” Khorsand said in a research note.
Piper Jaffray analyst Gene Munster said in his research note that he remains confident in the company and is maintaining an “overweight” rating on the stock.
“After a nearly flawless report and guidance track record, Web has changed directions and guided down two consecutive quarters. Despite investor concerns regarding management’s credibility, we view Web’s management team as measurably more qualified than typical small-cap companies,” Munster said.
“We are buyers of Web.com on this pullback given the issues that caused the guide down are largely correctable, the market opportunity remains real, valuation suggests the stock should be supported at these ranges, and we view management as competent,” he said.
Body Central records sixth straight loss
A day after appointing a new chief executive officer, Body Central Corp. on Thursday reported a $16.7 million loss for the third quarter, its sixth straight quarterly loss.
The Jacksonville-based fashion retailer has been plagued with plummeting sales and the third quarter was no exception. Total sales in the quarter dropped 28.6 percent to $43.4 million and comparable-store sales (sales at stores open for more than one year) fell 23.1 percent.
“We continue to transform the company by enacting substantial expense reductions, reducing inventories, recalibrating merchandise assortments and carefully managing our cash,” Chief Financial Officer Richard Walters said in a news release.
“While certain aspects of our recovery will take multiple quarters to reflect noticeable results, we intend to build on this quarter’s positive momentum which is reflected in the $7.2 million, or 29 percent, reduction in SG&A (expenses) from the third quarter of last year, and the 43 percent per store inventory reduction from one year ago,” he said.
Body Central has closed 23 stores this year, lowering its total to 271, and plans to close five more stores before the end of the year.
The company Wednesday appointed Ben Rosenfeld as president and CEO, succeeding Brian Woolf, after Woolf said he planned to retire at the end of this year.
Regency Centers stock reaches six-year high
Regency Centers Corp. lost out on its bid to buy AmREIT Inc., but it wasn’t all bad news last week for the Jacksonville-based neighborhood shopping center developer.
Regency’s stock reached a six-year high Tuesday after a strong third-quarter earnings report.
The company’s core funds from operations of 71 cents per share were 6 cents higher than the third quarter of 2013 and 2 cents higher than the average forecast of analysts surveyed by Thomson.
Funds from operations are basically earnings excluding depreciation and amortization expenses and are considered the key metric for evaluating real estate companies.
Regency also reported net operating income from properties operated for more than one year rose 4.1 percent in the quarter.
“Our results to date and my optimism about future NOI growth prospects are indicative of the health of the portfolio, which by all objective measures is one of the industry’s best. We are also benefiting from the favorable supply environment and continuing strong demand for better centers from expanding retailers,” CEO Hap Stein said in Regency’s conference call with analysts.
Regency had been trying since July to buy Houston-based AmREIT, another shopping center developer that is much smaller than Regency but has properties in attractive markets.
AmREIT rejected Regency’s unsolicited offer of $22 a share in July and then began seeking other bids. AmREIT last week accepted a big from Edens Investment Trust to buy the company for $26.55 a share.
During Regency’s conference call, Stein wouldn’t comment on Regency’s role in the bidding process but did comment on the final price for AmREIT.
“I think the company achieved great pricing and a great result for their shareholders and being a shareholder, we’re very happy with the outcome,” he said.
“We’ve already got a wonderful platform in Houston that we feel really good about and we’re happy to have that,” Stein said.
SunTrust Robinson Humphrey analyst Ki Bin Kim thinks the bidding process for AmREIT is over.
“We do not expect a superior bid from other public real estate investment trusts given the termination fees involved and overall pricing. It would be difficult to sell the deal to investors and to outline the upside of buying AmREIT at these prices, especially in the public forum, in our opinion,” Kim said in a research note.
Regency’s stock rose as much as $1.44 to $62.81 Tuesday after its earnings report, its highest level since the recession pushed the stock down in 2008.
Kim thinks Regency’s stock price may be getting high, based on its earnings, so he is maintaining a “neutral” rating on the stock.
“Good solid quarter, but it is simply difficult for us to be comfortable with Regency’s stock valuation level at 20.9 times 2015 FFO,” he said. That’s a higher price-to-FFO ratio than other shopping center developers, Kim said.
Stein Mart sales up again
Stein Mart Inc. last week reported total sales in October rose 2.9 percent to $97.7 million and comparable-store sales rose 1.4 percent.
The Jacksonville-based fashion retailer had 268 stores in operation at the end of October, four more than it had a year earlier.
Stein Mart said its sales last month were strongest in Florida and Texas.
For the entire third quarter, comparable-store sales –– considered by analysts to be the key indicator of a retailer’s performance –– rose 3.1 percent.
Avondale Partners analyst Mark Montagna said in a research note that comparable-store sales in October were below his expectations but sales in the entire third quarter that ended in October were in line.
“We expect third-quarter comps were a positive indicator of fourth-quarter comps. As a result, we remain confident in our EPS projections and continue to recommend buying shares,” Montagna said.
St. Joe reports loss
The St. Joe Co. on Thursday reported a third-quarter net loss of $50,000.
Revenue for the real estate development company fell 35 percent to $24 million, due largely to a decline in residential real estate revenue attributed to a decrease in finished lot availability and a large home site sale in the third quarter of 2013.
St. Joe also said it had no significant commercial real estate sales in the quarter.
Timber sales also declined sharply after the company sold off a large segment of its timberland early in 2014.
Publix stock down despite strong earnings
Publix Super Markets Inc. last week reported higher sales and earnings for the third quarter, but also a lower stock price.
The Lakeland-based supermarket chain said earnings rose 7 percent to $384.2 million, or 49 cents a share.
Total sales rose 5.1 percent to $7.4 billion and comparable-store sales rose 5 percent.
However, the most recent appraisal of Publix’s stock showed the price decreased from $33.85 on Aug. 1 to $33.80 on Nov. 1.
Publix’s stock is not publicly traded and is made available for sale only to employees.
“I’m pleased that our Publix associates delivered strong results,” CEO Ed Crenshaw said in a news release.
“Unfortunately, these results were not enough to offset challenges in the stock market,” he said.