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  • JOSB Management Doing A Predictable and Potentially Ruinous Job 0 comments
    Jun 18, 2010 12:55 AM | about stocks: JOSB

    I have spoken about this subject in the past, but it bears repeating, as retail company after retail company participates in the same destructive behavior as a result of nothing but an increase in market cap.

    JOSB is moving full steam in the direction of expansion as a result of manipulation. In JOSB's case, the management team is being manipulated into overly-aggressive behavior as a result of an inflated stock price. This had led management to believe that opening between 30-40 new stores this year is the proper modus operandi. A gleeful press release recently stated that the company is on track for the opening of these stores. http://baltimore.bizjournals.com/baltimore/stories/2010/06/14/daily27.html?ana=yfcpc

    Management in these situations is 100% focused on driving the share price without thought for the long-term ramifications of their expansion efforts. In most cases, these types of rapid expansionary phases end up diluting and in effect,  cheapening the companies brand through over-exposure. They are often mistimed, as management is the most aggressive during the most "bubbly" of economic phases.

    For example, while lease rates were inordinately low and prime locations were available in 2009, JOSB opened their lowest number of stores (14) since their expansion efforts began in 2003. It is fair to say that management became bearish and cautious on their expansionary phase exactly at the time when - from an economic standpoint - it was the most favorable time to act.

    When the markets began to soar again throughout 2009, with JOSB's stock price being a willing participant...JOSB's management sat back and allowed both the share price of their stock and perceived safety of a rebounding economy force their hand into resuming their aggressive expansion of stores. The thinking here is 100% based on increasing the share price, regardless of the shaky foundation that lies beneath.

    Saying you are opening X number of stores per month is a way of exhibiting bullishness in your brand, concept and the future prospects for the company. It plays well with retail investors who do not look at the fact that the share price, in the case of JOSB, is being driven to extravagant heights as a result of momo players and short sellers throwing in the towel. The cycle of optimism that is created here causes management to open all the more stores in an effort to justify the current market cap of the company. And the cycle continues for as long as it can.

    Management's actions today have the short term effect of creating artificial buoyancy in JOSB equity price. The long term effect on share price will be related to the prudence of their actions purely from an economic standpoint.  That being said, over the long-term JOSB's equity price will be below $10, as management will realize that they did nothing during their tenure other than play the role of economic trend-followers. By that point, they will be reshuffled and the cycle will start anew...but we'll cross that bridge when we get to it.

    Signed: the always efficacious Dr. Kellegro



    Disclosure: Short JOSB
    Stocks: JOSB
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