Buying a stock before its earnings report is certainly a gamble. Joe's Jeans (NASDAQ:JOEZ) announced that it will be reporting its fourth quarter earnings on February 13th after the market close and will follow with a press conference at 4:30 pm. So what's in store for Joe's Jeans earnings report? Really, nobody knows - which is what makes Joe's earnings call even more of a gamble.
These earnings will be unlike any other earnings that Joe's Jeans has ever reported. In July 2013, Joe's Jeans announced the acquisition of fellow premium jean maker, Hudson Jeans. In October, the company finalized the $98 million dollar deal with Hudson and this will be the first earnings report in its history where investors will get to see how the Hudson brand is performing under the management of Joe's Jeans. The takeover by Joe's was a monumental business decision and a huge investment for Joe's Jeans. Will these investments pay off? We will get a peek at its potential in the impending earnings report.
Currently, there are only two analysts covering Joe's Jeans and they are calling for an average loss of a $.02 per share. One analyst has breakeven expectations while the other sees a loss of $.04 per share. These results will be a true test for Joe's Jeans and will reveal the possible strength behind Hudson. Just last April, Joe's Jeans traded at over $2.00 per share. In July 2013, Joes was trading at $1.86 when it announced not only its second quarter earnings but an acquisition with Hudson Jeans. While Joe's did post positive earnings of $.02 cents, analysts were expecting $.03. Additionally, revenues were down slightly and same store sales slipped by 6%. In the following months, the stock saw lows of just over $1.00 per share. In October, Joe's finalized the deal with Hudson and announced its third quarter earnings. Joe's Jeans' third quarter resulted in a loss of $240,000, mainly because of the charges related to the costs associated with the acquisition of Hudson. Since then, the stock has risen from $1.03 to $1.25 with no significant news. The anticipation of the performance of the Hudson Jeans brand under the watch of Joe's just may have given shares a favorable boost.
The blend of these two fashion forward premium jean companies seems compelling. With the ability to cut production and marketing costs the future seems bright. Hamish Sandhu, Chief Finanical Officer, was quoted as saying,
"Going to an overview of two main denim brands, how they're different, how they are similar. So we have $200 million in revenue, as you can see the Hudson brand has grown from $65 million all the way up to $80 million over the last three years; the Joe's brand has grown from $95 million to $122 million over the last three years. So these brands are growing, we expect them to continue to grow."
As you can see, the Joe's and Hudson brands are relatively healthy and arguably pretty strong. Positive news could result in a nice surge in shares for investors. In the last six months, Joe's has traded between $1.05 and $1.30. On February 17, Joe's Jeans closed at $1.23. This current price per share gives Joe's a market cap of only $83 million. Given the fact that they are currently bringing in $200 million in revenue, itseems like a great entry point and makes shares relatively inexpensive. Shares become even more of a bargain if you believe in Joe's Jeans' future and ability to continue the dramatic growth as well as bring in profits.
There is no denying that Joe's Jeans has had a volatile history with its earnings reports. Needless to say, this is a critical report from Joe's Jeans. Investors should be prepared for a double digit % swing in stock price in either direction. After taking a quarter off because of the cost related to the Hudson acquisition, it will be interesting to see if Joe's Jeans can get back to its streak of posting a profit. Both Joe's and Hudson have been growing sales for years and the analysts seem to have low expectations. Hudson certainly has the ability to really surprise investors on this report and it just may be worth the gamble to see if shares of Joe's Jeans fit in your portfolio.
Disclosure: I am long JOEZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.