Insiders buy and sell their company stock for a variety of reasons. In this article, we review insider buys from last week (May 7th to 11th, 2012) in stocks of two companies in the consumer & retail sector that have plunged recently on negative news. Insider buys-- especially unusually large ones-- in such stocks that have plunged recently, may give bulls comfort that the long-term fundamentals may be intact and that a turn may be under-way in the next couple of quarters. On the other hand, sells at depressed prices after the plunge may lend even further credence to the bear thesis. In addition, we also review nine additional noteworthy sells last week in the consumer & retail sectors.
These transactions were selected based on a review of over 1,850 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock:
Herbalife Ltd. (HLF): HLF is a global network marketer offering weight management, nutritional supplements, and skin and hair care products to its members. On Friday, three insiders filed SEC Forms 4 indicating that they purchased 14,000 shares for $0.65 million, with Director Michael Levitt being the largest buyer (10,000 shares). In comparison, insiders purchased 21,000 shares in the last two years. Besides the sales mentioned above, it should also be noted that two other insiders also filed SEC Forms 4 last week indicating that they sold 11,401 shares. However, insiders sell for a variety of reasons, and the amount of the sales fall well below average levels given that insiders sold 2.31 million shares in the past year. Rather, it is the uncommonly large insider purchase that is worthy for investors to pay attention to here.
HLF reported what appeared to be a good Q1 (March) the week before last on Monday, beating revenue and earnings and guiding FY 2012 revenue and earnings higher. However, shares started plunging after the company's conference call the following morning, now down 35% post-report, when it was subjected to pointed questions from noted guru and hedge fund manager David Einhorn during the call about its disclosure (or lack thereof) of the breakdown of its sales to distributors vs. consumers for the latest quarter.
Mr. Einhorn is renowned for making profitable bets against companies with questionable accounting practices, and the concerns-- while not entirely new-- may have just inflamed continuing concerns investors generally have had about HLF, and about network marketing companies in general. That is, how much product is being actually sold to end consumers, that is the only indication of true sustainable demand for the products. After the plunge, HLF shares now trade at 10-11 forward P/E and 8.8 P/B, a steep discount to its growth rates above 20%. The company is also on track to buy-back an additional $427.9 million of its stock, that will complete its current $1 billion authorization for share buy-backs.
Fossil Inc. (FOSL): FOSL designs, develops, markets and distributes fashion accessories worldwide, including fashion watches, handbags, belts, small leather goods, jewelry, and sunglasses. On Thursday, two insiders filed SEC Forms 4 indicating that they purchased 7,100 shares for $0.56 million, with the buyers being CFO Mike Kovar and Director Jeffrey Boyer. In comparison, insiders purchased 10,470 shares in the past two years.
FOSL shares have been plunging ever since it reported its Q1 (March) on Tuesday, now down about 35% post-report. While Q1 results were slightly weak, with the company beating earnings estimates by a penny (93c vs. 92c) and missing on revenues ($590 million vs. $618 million), it was the forward projections that spooked investors. Notably, the company guided Q2 earnings to 77c-79c vs. the 94c estimate, while also guiding lower Q2 revenues and FY 2012 annual earnings.
The company cited weakness in its European market as the primary reason for the projected shortfall. That also spooked investors in its peer luxury goods companies, such as apparel, footwear and accessories maker Michael Kors Holdings (KORS) and watch-maker Movado Group (MOV). After the plunge, FOSL shares now trade at 12-13 forward P/E and 4.4 P/B compared to averages of 14.2 and 1.6 for its peers in the precious metals and jewelry group. Also, a number of brokers have come out in support of the stock after the plunge based on value, most notably Benchmark & Co. that upgraded it to Buy with a $100 price target, well above current prices in the $78 range.
On top of these, insiders also reported noteworthy sales last week in the consumer and retail sector stocks in:
- Kimberly-Clark Corp. (KMB), that manufactures disposable diapers, baby wipes, facial and bathroom tissue, paper towels and various commercial hygiene products, in which four insiders sold 131,959 shares for $10.4 million, in comparison to 1.78 million shares sold by insiders in the past year;
- Estee Lauder Co. (EL), one of world's leading manufacturers of makeup, fragrance and skin / hair care products in over 150 countries, sold under owned and licensed brands, in which CFO Richard Kunes sold 120,956 shares for $7.4 million, in comparison to 1.1 million shares sold by insiders in the past year;
- CVS Caremark Corp. (CVS), that is a leading integrated pharmacy services provider in the U.S., including the nation's largest pharmacy chain, and a provider of pharmacy benefit management services, in which EVP & CLO Douglas Sgarro sold 137,930 shares for $6.4 million, in comparison to 0.48 million shares sold by insiders in the past year;
- Philip Morris International Inc. (PM), a manufacturer of cigarettes sold worldwide under the Marlboro, LM, Parliament, Virginia Slims and other brands, in which Chairman & CEO Louis Camilleri sold 70,000 shares for $6.0 million, in comparison to 0.10 million shares sold by insiders in the past year;
- Lorilland Inc. (LO), the third largest manufacturer of cigarettes in the U.S., in which two insiders sold 27,806 shares for $3.7 million, in comparison to 59,754 million shares sold by insiders in the past year;
- Harley-Davidson Inc. (HOG), manufacturer of the famed Harley-Davidson brand of motorcycles as well as a complete line of motorcycle parts, accessories and general merchandise, and also financing services to dealers and customers in the U.S. and Canada, in which Chairman & CEO Keith Wandell sold 50,000 shares for $2.6 million, in comparison to 87,854 shares sold by insiders in the past year;
- Lululemon Athletica (LULU), an operator and franchiser of yoga inspired athletic apparel stores for women, men and female youth in North America and Australia, in which CFO John Currie sold 30,000 shares for $2.4 million;
- Coca-Cola Co. (KO), a manufacturer of non-alcoholic beverage concentrates and syrups sold to bottlers and fountain wholesalers, in which SVP Guy Woallert sold 22,950 shares for $1.7 million; and
- Kroger Co. (KR) is one of the largest grocery retail chain operators in the U.S., and it also manufactures and processes food for sale in its supermarkets, in which two insiders sold 48,942 shares for $1.1 million, in comparison to 0.37 million shares sold by insiders in the past year.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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