I wonder about the significance of this on the POG.
The Lunchtime News
Jul 02, 1997
FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo
Friedman's Ground Down
Shares of FRIEDMAN'S (Nasdaq:FRDM) dropped $6 11/16 to $16 1/16 on more than ten
times normal volume after the jewelry store chain announced lost profits no insurance company
would cover. Management appraised third quarter revenues at around $45.8 million, up 18% from
year-ago levels but below expectations. The lower-than-expected sales will have a
disproportionate impact on the bottom line as management had pumped up expenses in anticipation
of continued growth. The company now is telling investors it will only earn $0.11 to $0.14 per
share in the third quarter compared to the First Call consensus estimate of $0.26 per share.
The revenue drop came as a result of an unexpected 4.7% drop in comparable store sales.
Although cash sales remained strong, for some reason sales of jewelry on credit fell below
projected levels. The sudden, surprising decline at a mall-based jewelry store recalls the painful
drop in MARKS BROTHERS JEWELRY (Nasdaq:MBJI) in late December when that jeweler
warned that fourth quarter profits would come in below expectations. At the time, Marks Brothers
blamed weak holiday sales, although it failed to specify whether this was an across the board thing
or just concentrated in its credit operations. As Marks Brothers has yet to substantially recover
from its sharp decline, this does not necessarily bode well for Friedman's.
The reason why poor credit sales is particularly nasty for a jewelry stores is that many carry the
loans for the jewelry that they sell, making money not only on the initial sale but also on the
financing. If consumers are becoming less willing to take on debt to buy jewelry, the potential
impact for companies that sell high-ticket luxury items like jewelry might be tremendous. Other
companies that might be affected if this is a trend include TIFFANY (NYSE:TIF) , ZALE
(NYSE:ZLC) , REEDS JEWELERS (Nasdaq:REED) , and BARRY'S JEWELERS
(Nasdaq:BARY) .
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