Another Dark Day for Sunglass Hut

By Avi Stieglitz
Staff Reporter

Storm clouds continue to hover over Sunglass Hut International (RAYS), and there appears to be no sign of abatement.

The specialty sunglass retailer announced Friday that CEO and President Jack Chadsey, who was at the helm for the company's dynamic growth and subsequent burnout, has resigned to pursue other business interests. In heavy trading volume, the stock fell 11%, or 7/8, from 7 5/8 to 6 3/4.

As high as 36 15/16 in March 1996, the stock has suffered from inventory problems, a dearth of eye-catching new sunglasses and unrealistic growth expectations. Closely watched same-store sales have dropped from double-digit growth in 1995 to declines beginning in the second half of 1996.

Last week the company reported first-quarter earnings of $292,000, or 1 cent per share, compared with $7.2 million, or 13 cents per share, for the corresponding period in 1996. First Call consensus estimates were for 2 cents per share.

James Hauslein, Sunglass Hut's chairman, was named acting president and CEO. To turn things around, the company will refocus on marketing and advertising as well as execution at the store level, according to a company press release. Hauslein could not be reached for comment.

Thomas Filandro, an analyst with Gerard Klauer Mattison, believes that these are steps in the right direction but doesn't see the stock turning around anytime soon. "The fundamentals of the business are not that strong" right now, he says, pointing to a cool spring and a lack of must-have sunglasses in stores for the pivotal summer season. Filandro rates the stock a hold; his firm does not have an investment banking relationship with Sunglass Hut.

He attributes some of the company's woes to its inability to set fashion trends like other retailers. "The Hut has not become the voice of the premium sunglass market," says Filandro. "They have the strength and power to say what's hot and what's not, and they haven't."

The Street suggested that a comeback was in store for the company in an April 18 story. But so far, it hasn't happened. Same-store sales -- May's will be reported next week -- are expected to remain negative for the near future.

Still, Filandro says that over the long term Sunglass Hut will probably be able to get back on track. And one fund manager who has been accumulating a sizable position in Sunglass Hut stock in recent months as a turnaround play remains convinced that it can re-establish itself as a growth story, albeit on a far more modest level.

"If you believe the underlying story, you take advantage of these blips. It's just a matter of time before it's righted," says Vincent Sellecchia, portfolio manager of Delafield Fund (DEFIX), who adds that he might use Friday's stock drop to purchase more shares for his fund.

"The CEO resigning is a function of things not having moved fast enough," says Sellecchia. "I don't view the management change as negative. I think it's pro-active."

Another money manger is less confident but isn't dumping the stock just yet. "I'm still holding on, but there is uncertainty of who is running the company going forward," says Robert Salomon, a principal with STI Management in Stamford, Conn., which owns shares of Sunglass Hut.

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