Why Coldwater Creek (CWTR) Tanked on Monday

NEW YORK (TheStreet) -- Coldwater Creek (CWTR) plummeted on Monday after The Wall Street Journal published a report that the women's retailer is preparing to file for bankruptcy protection.

Shortly after midday, shares went into a tailspin, bottoming out 75.1% lower to 16.7 cents a share by midafternoon.

The Wall Street Journal cites sources close to the issue who note Coldwater Creek is currently in preparations to file for bankruptcy due to a high level of debt and fewer sales and as the wider retail industry with aggressively-promotional trends and consumers more reluctant to spend.

Coldwater Creek has yet to respond to the report. 

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TheStreet Ratings team rates COLDWATER CREEK INC as a Sell with a ratings score of D-. The team has this to say about their recommendation:

"We rate COLDWATER CREEK INC (CWTR) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Specialty Retail industry. The net income has decreased by 15.9% when compared to the same quarter one year ago, dropping from -$20.53 million to -$23.79 million.
  • Looking at the price performance of CWTR's shares over the past 12 months, there is not much good news to report: the stock is down 78.92%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • COLDWATER CREEK INC's earnings per share declined by 16.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, COLDWATER CREEK INC continued to lose money by earning -$2.69 versus -$4.16 in the prior year. For the next year, the market is expecting a contraction of 14.5% in earnings (-$3.08 versus -$2.69).
  • CWTR, with its decline in revenue, underperformed when compared the industry average of 6.6%. Since the same quarter one year prior, revenues fell by 17.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 37.46% is the gross profit margin for COLDWATER CREEK INC which we consider to be strong. Regardless of CWTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CWTR's net profit margin of -15.39% significantly underperformed when compared to the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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