5 Stocks That Posted Big Losses Last Week and Why

by: Alex Shadunsky

There were a number of stocks posting big losses last week, led by Lumber Liquidators, after it released disappointing Q2 guidance.

Lumber Liquidators (LL) tumbled 30% after the company released disappointing Q2 guidance. The company said net sales in Q2 are expected to increase approximately 4.0% y/y to $175.5 million vs. analyst forecast of $187 million. At comparable stores, net sales are expected to decrease approximately 8.0% for the quarter, in comparison with an increase of 5.5% a year ago. Net sales at non-comparable stores are expected to increase $20.1 million over the prior year period as the Company opened 11 new stores during the second quarter, and has opened 27 new stores in the first half of 2011. The company added that it now anticipates Q2 EPS will be in the range of $0.18 to $0.20 vs. analyst forecast of $0.31, and compared with EPS of $0.32 a year ago. In addition to the weaker-than-expected net sales, gross margins during the quarter were adversely impacted by greater promotional sales and higher transportation costs. Further, certain expenses as a percentage of net sales were higher than anticipated.

The company added that the results were weaker because value-conscious consumers became more price sensitive and cautious in their discretionary spending. The pressures challenging large-ticket purchasing decisions may continue to be volatile into the second half of the year, potentially resulting in continued consumer caution. However, certain internal demand indicators such as catalog and sample requests remain positive in comparison to 2010.

Lentuo International (LAS) fell 27% after the company said that its CFO resigned. Lentuo announced the resignation of its chief financial officer, Ping Yu, for personal reasons, effective July 7, 2011. Lentuo is currently seeking a suitable candidate to serve as the Company's CFO following Ms. Yu's departure. Ms. Jiangyu Luo, Lentuo's financial controller, will serve as acting CFO effective July 8, 2011, until the appointment of a new CFO is finalized.

Transcept Pharma (TSPT) closed 27% lower as investors continue selling the stock ahead of the company’s 7/14 PDUFA date for Intermezzo for insomnia. Intermezzo is a low dose sublingual formulation of zolpidem that Transcept is developing for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep. The market opportunity for Intermezzo is large. According to Wolters Kluwer, an independent market research firm, the number of prescriptions filled in the United States to treat insomnia grew to approximately 78 million in 2010.

NetScout Systems (NTCT) tumbled over 21% after giving weak Q1 and FY12 guidance due to weakness from its government and financial customers. The company said that its U.S. government new business bookings suffered substantially from budget holds and its traditionally strong financial services new business was weak, likely due to the profit pressure that its financial customers are currently experiencing. The company was, however, successful in growing its service provider and non-financial enterprise businesses y/y. The company lowered its FY12 outlook because of its shortfall in Q1. NetScout added that its product pipeline is strong, and it remains enthusiastic about its position as the market leader in Unified Service Delivery Management.

Satcon Technology Corporation (SATC) tumbled 20% after the company issued disappointing guidance for Q2. The company said that based on preliminary financial, Satcon expects Q2 revenue will be between $45 million and $47 million, compared with its previously announced guidance of $50 million to $60 million. The narrowed revenue range reflects the continued impact of changes in government incentives in the company’s higher margin markets in Europe as well as delays on a few projects that have been pushed into the third quarter. The company also revised its gross margin estimate for the quarter, which is now expected to be between 7% and 11%, below the company’s previously announced guidance of 17% to 20%. Q2 gross margin was affected by the lower revenue range, and the effects of the slowdown in the European market. Additionally, the company incurred one-time expenses relating to the revaluation of material due to lower component costs, an excess inventory provision and a non-recurring expense associated with a major project in North America. This project, along with an increase in accounts receivable reserves, will also impact the company’s Q2 operating expenses.

To further support its margin expansion efforts, the company announced that it conducted a global restructuring of its workforce that resulted in a 15% reduction in staff. This is expected to provide the company with compensation-related cash savings of approximately $5.0 million per year, beginning Q3. The company expects to record a pre-tax charge of approximately $1.0 million in Q2 related to this initiative. The company also announced that it entered into a securities purchase agreement with an institutional investor whereby it raised $16 million in gross proceeds through the issuance of subordinated convertible notes maturing July 1, 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.