Late Tuesday, Saks Inc. (NYSE: SKS) announced plans to offer up to $100 million in common stock. In a filing with the Securities and Exchange Commission (SEC), the upscale retailer said it will use proceeds from the offering to pay down its debt, and for general corporate purposes. Saks has approximately 138.3 million shares of common stock outstanding as of Sept. 28, and its long-term debt and lease obligations amounted to $662.9 million as of Aug. 1.
Saks has endured a rough year, thanks to a dramatic slowdown in consumer spending amid the recession. The high-end chain has swallowed quarterly losses in each of the previous four reporting periods, and analysts are expecting a loss of 14 cents per share for the current quarter.
Despite its dismal fundamental footing, Saks has marched consistently higher on the charts since bottoming near $1.50 in March. Throughout this uptrend, the shares have enjoyed technical support from their 10-week moving average. However, the equity's momentum recently stalled out near the $7.50 neighborhood -- the site of long-term resistance from its 20-month trendline.
In Wednesday morning trading, SKS was down nearly 6.5% at its intraday nadir, as traders panned the dilutive stock offering. As a result, the security is now putting support from its 20-day moving average to the test.
With the shares backpedaling, SKS has been swamped by call selling. Roughly 2,600 contracts crossed the tape on the equity's October 7.50 call within the first hour of trading, with 74% of the volume changing hands at the bid price. Judging by this option activity, it looks as though speculators are betting on SKS to remain pinned beneath resistance at $7.50 through October expiration.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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