J. Crew Pre-Earnings Runup: Sagacious or Merely Sequacious?

One reader and investor wonders...

Hello David,

Why the run up in JCG before the earnings announcement? Mind you, since I have a significant position in JCG, I’m not complaining.

Well, by now my answer is moot, as the company since has reported its earnings, and the stock is higher yet. Always keep in mind that different constituencies gain primacy at different times: traders, speculators, or investors (regular readers will recall my denotation as the investor's time frame), in addition to the different types of each class of investor - buy or sell side, fund or pension, etc - that each has its own individual objectives, etc.

Based on the high volume breakout that occurred Thursday, I suspect that someone (or someones) caught wind of the positive earnings report, and purchased on pure speculation. (Even knowing the news does not guarantee the market's reaction to that news item.) Too, I suggest Thursday's activity (+$3.20 to $44.87 on volume that is 376% of its daily average) was powered by traders purchasing the high volume breakout. Hmm, that seems kindasorta recursive, eh? When is the breakout? What price represents the breakout? How much volume signifies high volume? Sure, we have the closing numbers now, but what about all those investors who purchased during the day, during the breakout in process real time -- what did they know, and when?

J. Crew/JCG beats by $0.09; reaffirms long-term financial targets (44.56 +2.89)

Reports Q1 (Apr) earnings of $0.39 per share, $0.09 better than the Reuters Estimates consensus of $0.30; revenues rose 23.5% year/year to $297.3 mln vs the $270.4 mln consensus. Co reaffirms long-term annual financial targets of diluted EPS growth in excess of 20%, comparable store sales growth in the mid single-digit range, direct sales growth in the high single-digits, and net square footage expansion in the 7% to 9% range. Guides Y07 EPS higher, previous $1.27-1.31, now expects$1.37-1.41; sees Q2 EPS of $0.26-0.28, Reuters consensus is $0.28 (44.87+3.20).

The stock's last trade in after hours activity Thursday was at $46.80 (+$2 more). Friday is another day. A gloriously bright future beckons for this company, its stock, and us investors. Congratulations to the three of you who followed my lead, and purchased shares of JCG for your portfolios. This price move Thursday is only the beginning; the best is yet to come.

Full Disclosure: Long the shares of J Crew Group