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Skullcandy Stumbles, Despite Fourth-Quarter Earnings Win

SKUL is testing support at the $15 mark

by 2/23/2012 1:30:19 PM
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Following a number of notables into the earnings limelight this week, Skullcandy, Inc. (SKUL - 15.01) last night reported a fourth-quarter profit of $12.3 million, or 44 cents per share, compared to its year-ago loss of $9.7 million, or 69 cents per share. Omitting legal-related charges, earnings arrived at 47 cents per share. Thanks to a 73% jump in online sales, overall net sales improved 29% to $83.4 million. Gross margin, however, fell to 49.9%. The results came in above analysts' expectations for adjusted earnings of 43 cents per share on $83 million in sales.

Going forward, the audio headphone manufacturer is projecting a full-year profit of $1.10 to $1.20 per share on revenue ranging between $275 million to $285 million, bracketing Wall Street's forecast for earnings of $1.16 per share on $285 million in sales.

SKUL's margin concerns seem to have spooked traders a bit in today's session, with the stock down around 5% at last check. This post-earnings plunge cuts into the security's 26.7% year-to-date gain, but highlights its longer-term technical struggle, where over the course of the past 60 trading sessions, SKUL has lagged the broader S&P 500 Index (SPX) by more than 10 percentage points. The equity is now testing tentative support at the $15 mark -- a level that has served as both support and resistance since SKUL's initial public offering (IPO) in July.

Price Chart of SKUL

Ahead of last night's earnings, the options crowd had taken what appeared to be a rather bullish stance toward the stock. SKUL's 20-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 22.36 points to a distinct preference for calls over puts in the past month.

Bullish bets were quite popular in yesterday's session, as well, where speculators on the ISE, CBOE, and PHLX bought to open 1,922 calls, compared to just 133 puts -- bringing the stock's single-day call/put volume ratio to 14.45.

Outside of the options arena, investors are a bit more wary of SKUL's ability to maintain its upward momentum. Short sellers have increased their bearish exposure by 4.6% during the past month, and short interest now accounts for an impressive 42% of the stock's available float. With call volume and short interest rising in tandem, it may be that short sellers were hedging their bearish bets ahead of earnings, as SKUL's bottom line has bested Wall Street's forecast in all three reports it has released as a public company.

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