Options Trade – The Bon-Ton Stores, Inc. (NASDAQ:BONT) Puts
Thursday, February 27, 2014

**OPTIONS TRADE: uy the BONT Apr 2014 10.000 put (BONT140419P00010000) at or under $0.90, good for the day. Place a protective stop limit at $0.35 and a pre-determined sell at $2.00.

by Ian Harvey

February 27, 2014

Introduction

U.S. retailers continue to show signs of improvement across the board. According to the National Retail Federation, 2013 ended with a 3.7% increase in sales, and 2014 is predicted to continue the trend with 4.1% sales growth. However, consumer confidence is weakening, with the Conference Board's index falling more than forecast in February.

However, it seems that the improved retail environment is a direct beneficiary of lending institutions loosening their requirements, thus simply lending more money to bored consumers to spend. It is assumed by many that the positive retail numbers will not continue for much longer.

This is only one of the potential headwinds faced by brick-and-mortar retailers in 2014. Intense competition among them combined with price savvy consumers makes traditional retail a very difficult business. Add in the unlimited choice, ease of purchase, and often lower prices found online, and it spells tough going for most everyone in the traditional retail space.

This is particularly true for smaller, non-niche retailers such as beaten-down The Bon-Ton Stores, Inc. (NASDAQ: BONT). Shares of this 273-store retail chain have plunged from $19 in mid-December to a recent low near $9 in just two and a half months. BONT is now trading substantially below both its 50-day and 200-day simple moving average.

Company Details

The Bon-Ton Stores, Inc. is a department store operators in the United States, offering an assortment of apparel and accessories for women, men and children. The Company’s merchandise offerings also include cosmetics, home furnishings and other goods.

The Company operates in two segments: Stores and eCommerce (its Internet websites).

As of February 2, 2013, it operated 272 stores in 24 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner's, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger's and Younkers nameplates and, in the Detroit, Michigan area, under the Parisian nameplate, encompassing a total of approximately 25 million square feet.

The Company's private brand portfolio includes brands, such as Laura Ashley, Ruff Hewn, Relativity, Studio Works, Breckenridge, Living Quarters, Paradise Collections, Kenneth Roberts, Cuddle Bear, John Bartlett and Mambo.

Key Statistics for BONT

Current P/E Ratio (ttm) 15.3248
Estimated P/E(01/2014) -
Relative P/E vs. SPX 0.8995
Earnings Per Share (USD) (ttm) 0.6356
Est. EPS (USD) (01/2014) -0.1470
Est. PEG Ratio -
Market Cap (M USD) 199.39
Shares Outstanding (M) 17.52
30 Day Average Volume 589,787
Price/Book (mrq) 4.0797
Price/Sale (ttm) 0.0642
Dividend Indicated Gross Yield 2.05%
Cash Dividend (USD) 0.0500
Dividend Ex-Date 01/15/2014
5 Year Dividend Growth 0.00%
Next Earnings Announcement 03/11/2014
The Problems Surrounding BONT

The Bon-Ton Stores, Inc. which was founded in the late 1800s was the go-to place for a variety of merchandise in the town. In fact, in many places it was the only department store in many small towns at the time. Today, it faces competition from numerous stores offering a similar product mix.

Not only are the shares in free fall, company insiders are doing nothing to stop the carnage. During the past six months, there have not been any insider purchases. In fact, there have been six insider transactions with all of them being on the sell side. These sell orders total 311,930 shares, representing 5.6% of the total insider ownership.

The institutional community has not been any kinder to the company, with zero purchases and 1,646,130 shares sold during the most recently reported quarter. This means that almost 13% of the institutionally held shares were dumped in a relatively short time frame.

Reasons for the Freefall

The company boasts a market cap of $198 million, revenue of $2.93 billion in the past 12 months, and holds $8.08 million in total cash. Management recently revised its full-year same-store sales forecast downward to 3.5% and brought the earnings per share (EPS) estimate down to a wide range of a $0.30 loss to a $0.15 gain.

CEO Brendan Hoffman pointed to the disappointing Christmas season and bad weather conditions as the cause of the slowdown. But the question is, why did the company lower its full-year forecast and EPS estimates so drastically if the slowdown is largely weather related? Obviously, there is more to the selling than the bad weather conditions.

Also, there is little backing from analysts….

Conclusion

Many view the scenario that more bad news will be arriving about this struggling retailer, sending shares sharply lower. The company announced that it will release fourth-quarter and fiscal 2013 financial results on March 11, which could certainly be a catalyst.

It is believed that there is much more additional downside for BONT.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: uy the BONT Apr 2014 10.000 put (BONT140419P00010000) at or under $0.90, good for the day. Place a protective stop limit at $0.35 and a pre-determined sell at $2.00.



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Options traders win because they are successful.



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