BabyUniverse (KIDS) poops in its diaper

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BabyUniverse, Inc.'s (KIDS) stock is down 33% today and at a new 52-week low trading around $5 and change.  So the KIDS are not all right, reporting a wider-than-expected Q3 loss.

The stats on the call are the following:

• KIDS reported a loss of $5.6 million, or 31 cents a share, compared with a year-earlier loss of $6 million, or 40 cents a share.
• Q3 sales dipped slightly to $16.2 million from $16.5 million.
• The mean estimate of analysts polled by Thomson Financial was for a loss of 9 cents a share on revenue of $24 million in the period ended Nov. 3.
• BabyUniverse reduced its total debt to $21.2 million from $53 million a year ago

All in all, it doesn't sound like all of that justifies today's equivalent of dropping the baby off the changing table but Wall Street doesn't care.  The Masters think this stock is a good bounce candidate at $5 and if it drops into the $4 range, it's an all out Buy.

Commenting on the third quarter of 2007, Michael Wagner, President and CEO, said, "We are extremely pleased with our level of accomplishment during the third quarter. We completed a transformative merger of BabyUniverse into eToys Direct and efficiently executed a comprehensive integration of operations well in advance of our peak holiday season. Having faced the typical challenges associated with combinations of this nature, I am pleased to report that our merger integration activities were completed to our expectations with virtually no adverse impacts on our overall business operations."

Regarding the business opportunity of the newly combined company, Mr. Wagner continued, "Through our recently completed merger, we are well positioned to leverage a large combined parent audience through a balanced model of commerce, content and new media. We now have the opportunity to establish a relationship with a family during the earliest stages of pregnancy and maintain that relationship as their children move into their teenage years. We believe this strategy provides us with multiple opportunities to build meaningful and sustainable value for our shareholders."  Think Wagner is crying like a baby because of his stock options?  I bet he is.

Despite his postive words, BabyUniverse is getting put in 'time out' by Wall Street, let's watch for the bounce.