What Caused This Retailer's Runaway Run-Up?

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Shares of Body Central (NASDAQ: BODY), an apparel retailer catering to women in their teens and 20s, have shot up 24% in the past month. No buyout rumors or hot product lineup seem to have driven this sudden surge. Instead, these four reasons may explain why Body Central's shares rose -- and whether they'll keep rising.

1. Management turnover
Amid Body Central’s struggles with same-store sales and inventory markdowns, a few members of management have been shown the door.

On July 3, Martin Doolan retired as Chairman of Board of Directors due to health reasons. Replacing him was John Haley, who also serves on the audit committee.

After a disappointing earnings announcement on Aug. 2, the company announced on Aug. 17 that B. Allen Weinstein stepped down as CEO. The company's chief financial officer, Thomas W. Stoltz, replaced him as interim CEO and chief of operations.

At the same time, Body Central appointed an experienced retail man, Robert Glass, to the board of directors. His background includes 16 years as Loehmann's president-COO and CFO, from 1994 until his retirement in 2010.

The run-up in stock price could be Mr. Market’s way of expressing satisfaction over the new management structure.

2. Insider buying
Body Central’s board members and senior management started buying shares immediately after the management change on Aug.17, reaffirming confidence in Body Central’s future from the inside. Insiders purchased 21,650 shares in open-market transactions between Aug. 21 and Sept. 24. Maybe this string of purchases led Mr. Market to start bidding up the shares.

3. Seasonal factors
Body Central, Wet Seal (NASDAQ: WTSL), and rue21 (NASDAQ: RUE) returned 24%, 9%, and 8% gains in stock price, respectively, between Aug. 1 and Oct. 3, as shown in the chart below.

According to Body Central’s latest earnings announcement, income from operations and net income declined $2.6 million and $1.9 million, respectively, for the quarter compared to last year.

Wet Seal’s revenue declined 9%, and its net income became a net loss for their latest quarter.

rue21’s latest earnings announcement explains its run-up: Revenue and net income increased 17% and 19%, respectively, versus the same quarter last year.

In spite of poor fundamentals from Body Central and Wet Seal, perhaps “seasonal market enthusiasm” explains the rejuvenated market price of all three companies. Investors expected a better back-to-school season, and purchased shares in order to capitalize on it.

<img src="http://media.ycharts.com/charts/9d6995ff29038881c08118f68c426dc7.png" />

BODY data by YCharts

4. Oppenheimer upgrade
On Sept. 23, Oppenheimer upgraded Body Central’s stock from perform to outperform. The stock jumped 8% on Sept. 25. For some people, a Wall Street upgrade could be compelling enough to buy, regardless of fundamentals.

New management, combined with an insider stock-buying binge, seasonal market enthusiasm, and the Wall Street upgrade, all help to explain Body Central’s 24% stock price elevation. Will its shares keep rising? If the fundamentals hold, perhaps. But if they don’t, Body Central will tumble again, regardless of the factors mentioned above.

Body Central operates in a tough competitive environment. Until it develops a lineup that can sell without markdowns, its long-term future remains questionable.


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