Body Central (BODY) is a specialty retailer offering on-trend, quality apparel and accessories at value prices. As of March 8, 2012 the company operated 241 specialty apparel stores with plans of opening 35 additional stores (a 14.5% increase) during 2012. Same store sales grew by 11.3% in 2011 and operating margins increased to 10.6% of net revenue from 8.2% in 2010. In the latest quarter, BODY reported earnings per share grew by 52% to $0.38 year/year, a penny better than analyst estimates, and revenues rose 20% to $80.7 million compared to $79.7 million estimates. The company issued downside revenue guidance for the next fiscal quarter, seeing revenue of $343-348 million versus $354 analyst consensus, citing a softening in sales trend. Management expects to resolve the issue with a fresh product mix. Looking forward, analysts see 24% year/year eps growth for 2012. With a forward price to earnings ratio of 19, resulting in a PEG of 0.79, valuation looks reasonable. Management runs a tight ship with return on equity at 28% in 2011.
Assuming management can address the current quarter’s weakening sales trend and manage the hyper growth in new store openings (management has a solid history of handling operating details), the fundamentals for BODY look bright. Mutual funds agree as the number of funds owning BODY has increased for three quarters in a row as follows: Jun-11 147, Sep-11 167, Dec-11 188, Mar-12 205.
Technically, the stock has been forming a constructive flat base since the end of February.
A trigger buy point would follow a move over the 29.5 area on strongly increasing trading volume with an initial stop loss in the 27 area. The stock trades somewhat thinly so position size needs to be relatively small. Earnings are expected after the market close on Tuesday May 3 which adds to near-term risk in the price movement. The overall stock market environment appears positive and supportive of new stock positions.