Sometimes You Have to Admit Defeat...

Volcom, Volcom, Volcom... WOW! Going into earnings announcements I usually have a pretty good feel of whether or not a company can beat earnings in that quarter. I held VLCM today knowing that they should beat earnings estimates, and they did. Little did I know that they would do the same thing they have done each quarter since I started following them; issue guidance for the next quarter below estimates. Only this time, it is different. This company is in trouble. Their largest customer Pacfic Sunwear is not buying their products. Now whether it is because PSUN has too much inventory or are actually cutting back on VLCM products remains to be seen. This is main concern and it is a big one, but there is more...

Gross margins got smashed. Now sure part of it was because of a one time benefit last year; however, I am guessing the majority of the problem lies with lack of demand or pressure from PSUN. Either way this isn't promising.

Operating margins are down. Absolutely no leverage achieved. This is the last thing you want to see in a new company that is growing.

With the amount the company lowered guidance for the third quarter right now I don't think there is any way they will meet their guidance for the full year. That will give the stock yet another haircut. Wow, I just can't believe what happened here, I am still speachless.

I have to admit I was dead wrong on this company. I believed it had a tremendous product with great growth opportunities. Now I am forced to make the decision of when to sell this stock. Right now the stock is down 8% AH, that probably isn't a bad place to sell your shares. I may hold on for a few days and dump it next week in hopes that someone may find some small positive to focus on and buy the stock. Maybe some value guys will step in on it and pick up some shares. Here is one way to look at it. Given the abysmal performance that we are going to see out of VLCM over the next 5 months I feel like it is appropriate to look into next year and imagine how favorable the comps will look. The company has Europe coming on next year, which should drive tremendous revenue and earnings growth, particularly in the back half of the year. That may be a time to own the stock. Not now.