The Wall Street Journals "Heard on the Street" column discusses Chico's FAS (CHS), saying that the co has been so successful that there may not be many new customers left to attract. After becoming one of the stock mkt's top performers over the past decade, Chico's shares have fallen more than 50% since reaching a high Feb. Street's sudden snub has irked Chico's CFO Charlie Kleman, who assailed critics in an investor conference this month. "Certainly the Chico's brand is more mature than it was 3-5 years ago, but we do not believe it is by any means mature," he fumed. The reversal in Chico's fortune revolves around the question of whether the co can sustain its success as the expansion of its original brand slows while the co develops 3 other brands it has created or acquired in the past 3 years. "We continue to view Chico's as a core retail holding and recommend investors capitalize on the recent pullback," wrote Lauren Cooks Levitan, of Cowen, in a research note to investors this month.
The WSJ's "Tracking the Numbers" column discusses General Motors (GM), which has been a popular trade for short sellers. At the beginning of this year, 17% of GM's outstanding shares were sold short, up from 10% five months earlier. Large household-name co's rarely see the short-interest percentage in their stocks climb above single digits, but given GM's woes, the shorts felt they had a sure thing. That sure thing has turned into a pileup of wrecked trades: GM shares are up 60% over the past few months, making it the top performer among the component co's of an otherwise sideways-moving DJIA. A rally in a shorted stock hurts the short seller, who sometimes must pay higher fees on the borrowed stock or, in a worst-case scenario, buy the stock back at its higher price and close out the trade, registering a loss. "It was a very popular short at the beginning of the year, but since April, it's been working against you," says Joseph Amaturo, of Calyon. "There's a fair amount of pain." Adds a hedge-fund manager who has lost money betting against GM: "Earlier this year, you couldn't go to a dinner without someone pitching you an idea on shorting GM...but there's been a giant sucking sound of hedge funds losing money" in the past few months.
Barron's Online discusses Electronic Arts (ERTS), whose stock is up 15% since Jun 26. Some believe that this is a signal some believe the worst is over. Still, substantial uncertainties remain in this videogame cycle. Will Sony (SNE) ship enough units of its PlayStation 3 machine this holiday season in the US? Will gamers shell out as much as $600 for the thing? At the same time, development costs are going up, up, up. EA's R&D is expected to rise 20% this year while sales decline slightly. With an uncertain marketplace and escalating costs, it'll be no slam-dunk for EA to hit a home run with each game, and do it profitably. For that reason, it may make more sense to buy call options to exploit potential upside to EA's August earnings report, rather than buying the stock outright right now. "The transition [to new consoles] is always more painful than you thought it would be," says Mike Sansoterra, a technology analyst with Principal Global Investors. In addition, he says, "EA still has to show they can control costs," which is difficult when, "this is becoming more like the movie business, where you have to have a blockbuster with each title."
The NY Post has learned that while Time Warner (TWX) is set to unveil the details on a plan to make many of the features at America Online free, behind the scenes the media giant is weighing much bolder moves to transform the troubled Internet unit. In recent weeks the co has once again approached major tech and media co's to discuss possible partnerships, and internally the co has been weighing a plan to spin off a portion of AOL, perhaps as much as 20%, to public shareholders. The plan to make AOL's e-mail and Web services available free to high-speed Internet users was presented to Time Warner's board yesterday, and will be unveiled publicly on Aug. 2.