So, been rambling about this for a while, and thought might as well lay outa recap here. Last Q1, if memory serves, we had a massive beat with $0.67 in EPS. We sold 4.5 million bewers! I thought it was going to be good, but this was just crazy good. This was the first earning release after Einhorns thesis was presented. It looked, at least in the short run like he could not be more wrong. The stock price shot higher, from recent lows of, oh I think it was about $42, up into the $60s. It felt like there was a complete repricing of this stock and did not know where it would stop, but the expectation was higher. Then, about as qickly as it rose we had our post ER gains wiped out and were back where we started low 40s ish. Probably the single most concerning fact was that management didn't raise guidance despite a huge beat. They sounded downright cautious on the call, basically saying they had changes in order patterns and just couldn't really address guidance at the time. They didn't have contro of the situation. The shorts pounced on several items, but probably the biggest issue was that inventory was suposedly up despite higher than expected revs. Shorts hammered away at the fact that inventory should have come down if management's expectations were exceeded. (in retrospect it was true, management did not have control of the situation, although I still think this was exagerated because we were underinvested in working capital for years. And additional sales channels created additional compexity of the suply chain.)
You all know what happens next, most of the bull on this board thought we would be vindicated in Q2 with a strong quarter following so many brewer sales in Q1. Instead, the quarter was more or less in line at best. Management acknowledged that they didn't understand their own business. There was in fact a big charge for bad inventory, they had mismanaged seasonal greats like french toast flavor or whatever. We all saw quite a bit of marked down k-cups, and places like mashalls were selling near expired k-cups regularly.
However, the shorts overshot. We all heard throughout the next quarter that the story was over. Management was out of their element. K-cups were basically worthless. All the capex was a 0 ROI cash was being burned, and all this before patents expire. Once that happened there would be a "flood" of off brand. And, oh yeah, accusations of downright fraud that were getting arder to refute. Fast money highlighted a short trade going in to the next ER where their main concern was that the trade would start eating in to its gains if the SP went below $7. We hit $17 in those months.
Finally, when the next report came out, when we were supposed to see the death rattle, the report was actually pretty decent. Q2 was starting to look like a kitchen sink quarter, but the battle raged on. By Q4, another solid quarter, momentum was clearly in on t long side. Plenty of articles came out citing the 14th week, inventory reserve, etc. etc. But even adjusting for those things, the run rate was solid at a time when we were supposed to beleive was the end of days. They could poke all the holes they want, but have to acknowledge things were not nearly as dire as they had claimed. They were flat out wrong.
And this is where we sit today. Waiting to see how holiday sales were. End user sales by all account so far were pretty solid (nielson, NDP, DNKN & SBUX). However, the comp to Q4 last year was the crazy blowout quarter that really wasn't. It was solid, but as we all learned in Q2, the channels had been mismanaged and forecasts wer bunk. This is why I keep saying, don't look to the brewer comp, or even k-cups although they were slightly lss distorted. Focus on a solid EPS number, it is fair to be diissapointed if they don't raise guidance, and look for upside if they bought back a couple mil more shares... Expectations have risen quite a bit, but anything short of lowering guidance should keep the shorts squirming...
We are going to find out in a few days that is for sure. The talk is a huge earnings beat around 91 cents and raised guidance. I think anything .75 or above puts the stock into a new stratosphere, especially if they raise guidance for the year. A NFLX type squeeze would be nice, but it is going to depend on what GMCR delivers on Wednesday evening. Big beat, raised guidance, buyback, and a few more upgrades, with 25% of the float short, and GMCR could be looking at $100 easily again.