New Merrill update (when CNS was $31) says that the weakness is related to the internet in two ways: 1) Concerns that on line toy sales will cut into traditional store sales and therefore cut overall margins, and; 2) alot of players are moving into online toy sales besides eToys, therefore reducing online valuations overall. Merrill believes that the online winners will be the existing players such as ToysRUS and K-B because of their extra leverage and name brand awareness. Unfortunately, this will have to play out to see if it holds true. Also, and the proposed KBToys IPO is 6 months or more away and in internet mania that's a lifetime.
Merrill also said that KB was only showing 3-4% same store sales growth this quarter versus a 5% plan (due to less than expected star wars sales). However, they also said that several other divisions were EXCEEDING their targets and that 2Q earnings were on plan. They again stated their $60 target and a 1-1 buy rating. Me, I recently doubled up at $25 and change. However,this drama may take 9 months to play out...so it depends on your time horizon if you want to see it through. Good investing.