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Keith shorted JNY again in the Hedgeye portfolio today. I had three people ping me this morning on the rationale. Each of them had a similar message; “Don’t you think that the cat’s outta the bag?” Simply put, the answer is “No.”

JNY’s Guidance looks like the start of a game of Chinese water torture. Check this out…

“Our goal and the corresponding plans that we have put in place are focused on our achieving gross margins approximating last year. If the business climate deteriorates, we believe that full-year gross margins could decline by 50 to 100 basis points. Comparisons in the first half of the year are more difficult than the back half of the year. We faced near ideal conditions in the first half of 2010 and posted near record gross margin percentages. In 2011, we are facing distinctly different conditions regarding rising product costs and continued uncertain consumer spending as unemployment stays high and the cost of consumer staples continue to rise. Keeping all this in mind, we expect first-quarter gross margins will be down by approximately 200 to 250 basis points and second-quarter margins down about 150 basis points. As we get to the back half, it's much tougher to forecast, but as price increases have a more significant impact and we benefit from tighter controls of inventory, third-quarter margins could be flat to up slightly and fourth-quarter could be up sharply.”

So our interpretation of that is “Margins should be flat, with a hockey stick trajectory leading to a strong finish to the year. But if things erode further, margins could be down by 50-100bps off a record 2010.”

So did they say that “if the unknown occurs in 2H, it will cost us 50-100bps in margin.”

Why not 200bps? Why not 500?

The Street is at $1.37 for the year. We’re having a tough time getting over $1.10.

Brian P. McGough
Managing Director