Need proof that this market is unpredictable?

Lands' End

(LE) - Get Report

Thursday reported first-quarter earnings that fell far below analysts' expectations. Yet its shares rose 4.4%. This, in an environment where companies missing same-store-sales estimates can see their stock get a 20% haircut.

Lands' End's good brand name may have saved it for now, but analysts say it won't be so lucky if the second quarter doesn't meet expectations. For a company that has served up a number of disappointments in recent months and whose stock is more than 60% off its 52-week high, that means the coming months will be crucial.

Rock Steady

Lands' End, whose stock was on a tear until it predicted poor fourth-quarter sales back in November, reported first-quarter net income of a penny a share -- a whole lot less than the 16 cents a share predicted by analysts surveyed by

First Call/Thomson Financial

. The catalog retailer also said first-half sales percentage gains should measure in the low single digits, instead of the mid-single digits anticipated earlier. First-half earnings will also be weaker than the same period last year.

Rough Seas
Lands' End shares experiencing turbulence

Source: BigCharts

Analysts professed shock. "When I saw '1 cent' come out I thought it had to be a mistake," said Barbara Wyckoff, an analyst with

Buckingham Research

, who was predicting earnings of 18 cents a share, the same as the company made last year. She's now reconsidering her buy rating. She said that the company hosted a "very bullish" recent conference call. "Clearly we were caught off guard." (Her firm hasn't performed recent underwriting for Lands' End.)

But despite all that bad news, Lands' End shares didn't perform the 30% or 40% swan dive that might be expected under the circumstances. Instead, they dipped early on, but by the end of the company's conference call with analysts, they had recovered. At midafternoon they were up 1 1/2 to 35 3/4 as investors breathed a sigh of relief at a weaker-than-expected retail sales report, which indicates inflation may not be picking up as much as feared.


Apparently, the company did some serious hand-holding on the conference call (and will probably do a whole lot more at the analyst day it's hosting on Tuesday in New York). While sales disappointed due to the elimination of its

Willis & Geiger

unit, later catalog mailings, weak children's wear sales, softness in Japan and a poor performance from so-called prospecting catalogs (aimed at drawing in new customers), analysts came away convinced that the worst is past. According to Lands' End, its continued strategy to reduce unprofitable mailings by cutting back circulation is over, and new and more profitable growth can begin. The second quarter will likely feature growth in sales and earnings, it said.

Analysts liked that. In addition, the balance sheet looks pretty clean, says Jeanne Ernst, an analyst with

First Security Van Kasper

, who recently started coverage on Lands' End with a hold rating. (Her firm hasn't done recent underwriting for the company.) There won't be a whole raft of inventory to sell off at a steep discount.

Show-Me Stocks

There's also the "been down so long, it looks like up to me" argument. Lands' End shares were trading as high as 83 1/2 before the November disappointment. After that, a lot of hot money fled and hasn't returned. With a strong brand name and potential for Internet sales, Lands' End looks pretty good at these levels, says Derek Leckow of

Barrington Research

. He recently upgraded the company to a strong buy and says he holds to that rating. If all goes as the company plans, growth will likely accelerate later this year. (His firm hasn't done recent underwriting for the company.)

Yes, but. If it wasn't before, Lands' End has now become the poster child for show-me stocks. Even strong, Dodgeville, Wis.-grown brand names can atrophy if they fail to perform. The second quarter just got a whole lot more interesting for Lands' End, and for its shareholders.