Costco Wholesale (COST, $53.37, down $0.32) is recovering from its morning low of $50.70 after reporting a 1% gain in same-store sales for the quarter. The company earned $263 million, or $0.60 a share, compared with $262 million, $0.59 a share, a year ago. Revenue came in at $16 billion, up from $15.5 billion, as U.S. same-store sales were up 3%, but international sales were a major disappointment as they fell 7%. The stock started the week at $55.58.
Krispy Kreme Doughnut (KKD, $2.51, up $0.01) reported another loss. It’s hard to get excited about a $2 stock so I won’t even bore you with the numbers. Krispy Kreme was hurt by “higher ingredient costs” but this stock has been battered to the point where I’m actually surprised to see that it is still trading. Back in 2001, the stock had two 2-for-1 splits and traded to a high of $50 two years later. If it hadn’t split, KKD was technically a $200 stock. Whew. Stocks under $5 are under $5 for a reason.
Lululemon Athletica (LULU, $7.94, down $2.52) is were the action is at. The company reported earnings that topped Wall Street expectations by a penny but is getting crushed after giving guidance that fell short of the Street’s expectations. Go figure. LULU said earnings jumped 17% to $8.83 million, or $0.13 a share, from $7.6 million, or $0.11 a share, in the year-earlier period. Sales rose 34% to $87 million.
The company also lowered its 2008 guidance to $0.56 a share from $0.69 a share. Estimates from Wall Street were projected at $0.67. Here’s the risk of trading options around earnings. If you had bought calls in anticipation of a good earnings report then you would have been wiped out despite getting the news you wanted. However, if you had bought put options like the December 10 puts (QLNXB, $2.10, up $1.25), you are up 150% today.
There is one trade that I’m looking at though. Nike (NKE, $49.82, down $0.69) has been noticably weak as of late and fell $3 on Tuesday and another $2.50 yesterday. The December 50 puts (NKEXJ, $2.25, up $0.10) have easily doubled over that span. The company is set to announce earnings on December 17 and the December options do not expire until two days later.
Now, I just mentioned how risky it is to play stocks on the day companies announce earnings but sometimes it is okay to play them before they announce earnings. The stock made a 52-week low of $42 and change in November which gives us another $7 to the downside if the stock does retest those lows. I like small positions here at these levels in the December 50’s but keep a stop of $2.00 if you decide to enter the trade. That limits our loss to 10%. Target $3.00 or higher for an exit point.
I also like the January 45 puts (NKEMI, $1.90, unchanged) under $2.00 with a stop of $1.50 and a target of $3 as well.Rick Rouse
Rick@OptionsMentoring.com
