Implantable Lens Maker’s Investors Eye the Door

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When investors took a look at Staar Surgical Co. last week, they didn’t see a growing company that has recently turned profitable. They saw sales stagnating and key Asian markets shrinking.

The Monrovia company, which makes implantable lenses to correct vision problems, released lackluster preliminary results July 19 for the second quarter. Shares of the company lost about 26 percent of their value the next day, making Staar one of the biggest losers on the LABJ Stock Index for the week ended July 25. (See page 32.)

In its July 19 announcement, Staar said it expected second quarter revenue of about $16 million, down from $16.3 million in the same quarter last year and well below analysts’ consensus estimate of $18.4 million.

Executives blamed the weak quarter in part on the company’s shift to a direct-sales system in Spain. The company had done business there through a distributor, and sales declined as that distributor stopped new orders and worked through remaining inventory. But the company expects improvement once it starts direct sales in the country.

“The transition to a direct-selling model … in Spain had a negative impact on our sales, though it will provide an upside to expectations in Spain during the second half of the year,” Chief Executive Barry Caldwell said in the July 19 announcement.

But Staar, which reported its first small profit in 2010 and $1.35 million in net income last year, also disclosed that sales were lower than expected in South Korea and China, two of the company’s largest foreign markets.

Bruce Jackson, who follows Staar as an analyst with Northland Securities Inc. in Minneapolis, estimated second quarter sales were down 8 percent in Korea and 11 percent in China compared with the same period last year.

The company noted stronger than expected sales in other foreign markets, including Japan and Germany, but did not elaborate on why Korean and Chinese sales fell short. A spokeswoman for Staar said executives could not comment because the company is in a quiet period before the announcement of complete second quarter results Aug. 1.

The company in May said it expected annual revenue to hit $72 million this year, up from $63 million in 2011. It’s not clear whether Staar plans to revise that figure after its weak quarter.

Most analysts who follow Staar continue to rate the company a “buy,” though most also lowered their target prices for the stock. Jackson lowered his target price from $14 to $10.

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