TBL: ...A Thousand Words

It's easy to kick yourself over missing out on a money-making opportunity -- only to realize that sometimes the best thing to do in the spirit of risk management is to do nothing.

A law firm announced today a class action lawsuit against Timberland and several of its officers for breach of the Securities Exchange Act of 1934. We won't comment on the merits of the lawsuit, other than to say that a picture tells a thousand words. See below. 

While we kicked ourselves on the day of the upside surprise in January, we held our ground despite TBL seemingly having the best momentum in the footwear space. Several things did not smell right about it, which all came to fruition in May.

While we wish we'd been on the right of the both trades -- sometimes the best thing to do in the name of capital preservation and risk management is to do nothing -- especially when management credibility is at hand.

We won't be the judge and the jury on this one. That's the SEC's job. But we can look at historical price, sell-side/buy-side sentiment, and management stock sales. The simple conclusion is that after the blowout 4Q results and bullish comments about future shipments, we saw sentiment remain near peak levels despite a 45% run in the stock. Simultaneously, we saw management stock sales kick in, with several sales over 1Q right through the 1Q blowup. 

You be the judge. Regardless of anyone's opinion, the last thing this management team needs right now is a creibility problem.

From the press release:

"...the complaint alleges that, during the Class Period, the Company disseminated overly optimistic statements about then-present sales trends, cost discipline and inventory levels and an anticipated return to a 15% operating profit, and that, as a result of these representations, Timberland share prices traded at artificially inflated prices. However, at the same time the Company was making such statements, certain of its officers and directors concealed that demand for Timberland’s key products had actually declined dramatically, its inventory levels were rising, and Timberland had significantly increased advertising spending to counter lackluster sales, thereby materially decreasing operating income. On May 5, 2011, Timberland disclosed the financial results for the Company’s first quarter 2011 that were far below its bullish Class Period public statements. As a result of this revelation, prices of the Company’s common stock plummeted."

TBL: ...A Thousand Words - tbl1