Let Your Profits Run

On Friday I played J. Crew Group, Inc. (JCG) on the long side. J.Crew Group is an apparel and accessories brand that embraces a standard of style, craftsmanship, quality and customer service. JCG reported first quarter earnings of $0.48 per share, $0.01 better than the First Call consensus estimate. Revenues rose 14.6% year/year to $340.6 million versus the $334.6 million consensus view.

The problem for JCG and its stock on friday, however, was the company’s guidance for the second quarter and full year, which is well below analysts’ expectations. JCG sees second quarter earnings per share of $0.31 to $0.33 (consensus $0.40) and FY08 earnings per share of $1.70 to $1.75 (consensus $1.86). The company also revised expectations for fiscal 2008 comparable store sales growth, which it now expects in the range of flat to low single-digits. JCG shares tumbled more than 20% on this news.

At one point it was down to 36.61 (approx 22% down) which I felt like overdone in terms of selling for one trading day. I decided to take a plunge on the long side for a quick trade. JCG quickly recovered back from the low of the day and found support around 37 level. This is where i decided to make an entry with stop loss below 36.90 if it cracked the 37 level support. Not confident of the long side trade i put a sell limit of 20 cent gain. This made my risk reward ratio of 2:1 (Either lose $x or make $2x). In matter of few minutes my sell limit got executed on the winning side bagging $200 in gain. However thats when JCG started climbing and it reached all the way to $38.63 (potential $1600 profit) before it dropped back. I can’t complain because I exited the trade on the winning side. However i did not let my profits run. Ofcourse it is easy to say such things after it happens. It could have tanked from my exit point…who knows ??

The important lesson to learn is make use of trailing stops effectively. This way your loss is limited and profits can run. Easier said than done…..

  • Hate to disagree with you here sJ. But heading into an extended consumer-based recession – I’d be staying away from all consumer-based stocks and companies, such as specialty retail. The Walmarts and other necessary consumables will do fine. But people can live without J. Crew until they’re more comfortable parting with a few dollars.