Candlemaker Yankee Candle Co. cut second-quarter and full-year guidance Wednesday, citing weak wholesale sales as well as higher promotional spending, wax costs and freight costs. The company lowered second-quarter earnings guidance to between 11 cents to 12 cents per share from prior estimates of 18 cents to 20 cents per share.
That is an astounding example of inefficiency. Weak sales despite promotional spending, topped off with higher costs. We probably should have seen the writing on the wall when we accidentally stumbled on their flagship store in Deerfield, Massachussetts (near the corporate headquarters.) Needing to make a pit stop and stretch our legs, it seemed like a welcoming enough place.
As far as pit stops go, it is highly recommended. The overwhelming scented candle aroma in the restroom is a welcome respite from the alternative. Plus, it is quite amazing to see 100,000 square feet of retail devoted almost exclusively to scented candles and Christmas decorations. It was also nice, in July, to be in a cool dark room with its own snow generating machine. With its indoor Bavarian village complete with CDs of the Von Trapp family grandchildren, it was truly one of the damndest places we have ever seen. We tried to imagine pitching the idea to management: “We’ll make a huge candle store, with a Bavarian village and Christmas decorations year-round. We can make snow inside to keep people in the Holiday spirit. People will flock to it in buses! We’ll need picnic tables to handle the overflow from the restaurant!”
However, the bus parking (yes, there is bus parking - who takes a bus trip to a candle shop?!) was empty, as was the RV parking. There were a few people eating dinner at the convenient picnic tables but few people shopping. We might have given them some money, but it turns out their ice cream machine was broken so no dice there either.
So perhaps no surprise that sales in the summer are a bit lower than expected. The same thing happened last year, which should further limit the surprise factor.
YCC 5-yr chart:
On the other hand, it really will be the holiday season soon. And last year the stock did rally a bit right at the end of the year. Should we keep our eyes open for a buying opportunity? It turns out, we probably should. There was a year-end rally in 2004, in 2003, in 2002, in 2001…
You get the idea. Each year the stock has rallied for 1-2 months beginning in October, with the gains ranging from 10 to 30 percent. If that’s your kind of trade, you’ll want to keep your eyes open. And at any rate you should definitely check out the flagship store. It’s a hoot.