Saturday, August 29, 2009

Goodbye Jo-Ann, Hello...

For those of you following the saga, Jo-Ann Stores shot up this week thanks to a "better than expected" earnings release. I took the opportunity to sell my stake to its newest fans. Buy cheap, sell dear. This marks the second time I've bought JAS in the low teens and sold in the high twenty's. Good work if you can get it. Sure, I'm torn. Jo-Ann could be worth more based on all the qualities we've discussed here, but the easy money has been made. To quantify... 50% in 4 months. No autographs at this time, please.

Anyway, my shortcut method for narrowing down the retail universe has been working well recently, so I set out to find a replacement for Jo-Ann.

Motivation for this exercise was plentiful. For one, Charlotte Russe (CHIC) was acquired this week. Clearly someone thinks retailing (and specifically, mall retailing) isn't dead. Upon reviewing CHIC (after the buyout news), I found a solid company with a solid no-debt balance sheet. In short, it was a buyout waiting to happen. But the CHIC ship has sailed.

Unfortunately, the sailing ship is becoming a recurring theme for me lately.

Nowhere is this more true than with Guess! (GES). In November, a friend said I should take a look at the company. I did, but my impressions are lost in the haze that was 2008. Looking back, the clean balance sheet is obvious. Loads of cash and little (if any) debt. Nonetheless, I ignored it and its solid profitability. I have no idea why I didn't buy it. But I didn't. Share price at the time: less than $11 a share. Last week, Guess had another laugh at my expense, announcing a dividend increase. The current share price? $35 a share, up 24 points in 10 months.

My experiences (or lack thereof) with CHIC and GES combined with my JAS proceeds led me to take another spin around the retail world. If only to avoid the "wish I'd looked" problem in the future. This initial work yielded the following list of "companies of interest":

Abercrombie (ANF)
American Eagle (AEO)
Ann Taylor (ANN)
Barnes & Noble (BKS)
Buckle (BKE)
Cabela's (CAB)
Cato (CTR)
Children's Place (PLCE)
Hot Topic (HOTT)
Foot Locker (FL)

All of them have strong balance sheets and a history of significant earnings power.

More soon.

2 comments:

  1. The Buckle is a bit controversial in analyst circles. Its expanding margins are dependent upon pricing power, which implies that it's a moat company. Current hard times may be eroding the moat, which is what analysts who are bearish on the stock assume. Its July comparable same-store sales figure was a disappointment, and was the cause of the stock being knocked down by about 15% on the day it was released.

    That being said, I'm one of those people who think that the July disappointment was a blip.

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  2. Buckle made my preliminary cut, but not the second. Sorry to spoil the surprise for everyone. The list wasn't meant as an endorsement, just a starting place. Thanks for worrying about me, but I am one of those analysts in the circle.

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