Retail Out Of Favor - Opportunity Knocks?

[Danny]

Hello fellow members!

Coldwater Creek (CWTR) and Chicos (CHS) just went across my screen today - got hammered real good recently. Used to look at them when they had huge PEs and always backed-off ...now I'm smelling long term plays.

Soliciting your opinions on these and any other beaten down retailers.

Coldwater
CWTR - Coldwater Creek Inc. - Google Finance

Chicos
CHS - Chico's FAS, Inc. - Google Finance

[Moemg]

This is strictly from a women's point of view but I think Chico's shot itself in the foot with the Soma brand (extremely high priced underwear & not as nice as Victoria's secret ) . They need to dump that part of their business . As for Coldwater Creek ,it's geared to older thinking 35 year olds .I personally no one who shops there .I have no idea on the financials of JJill but that's a company that is expanding and getting more popular with the over 30 crowd .I'd check it out .JJill is owned by Talbot's symbol TLB .

[Hamlet]

I don't know a lot about those companies, but I would be reluctant to get involved in them, unless I had some reason to think that they were going to turn things around. They both had same store sales declines of 5-6% and very large earnings drops.

I would rather own Walmart, currently at 14-15 times earnings. Their same store sales were up 1-2%. Not stellar, but compared to these two (and Kmart/Sears), pretty decent.

I currently own Target, but if I was going to add money to retail right now, I would probably lean towards Walmart since it is so cheap. It also doesn't have the credit risk exposure that Target's credit card division gives it. If we get a serious recession, Target could face serious issues with its credit card business.

[terminator]

Retailers that happen to be on my tracking lists that look reasonably priced now to me are WalMart WMT, Staples SPLS and Tractor Supply TSCO. I don't know anything about CWTR or CHS.

That said, I've never owned any retailers other than HD/LOW because (1) it's usually an ultra-competitive, low margin business (2) it usually requires a lot of debt to build out a chain so the companies have high levels of debt (not to mention long-term leases, inventory and other overhead), (3) it's hard to develop a systematic advantage over competitors when they are all selling the same products and correspondingly it's difficult to stay on top for a long time (or to identify those companies that will persevere). It also seems like when a retailer falls on hard times (and I can think of dozens of "big" chains that have come and gone around here) that it is more likely that they go bankrupt or go out of business and have their assets picked over leaving shareholders empty handed -- instead of being being bought out by a competitor. That may go back to the large indebtedness and overhead since when they lose 5% of sales most of their expenses stay the same. JMHO of course.

[Danny]

Quote:

Originally Posted by Moemg This is strictly from a women's point of view but I think Chico's shot itself in the foot with the Soma brand (extremely high priced underwear & not as nice as Victoria's secret ) . They need to dump that part of their business . As for Coldwater Creek ,it's geared to older thinking 35 year olds .I personally no one who shops there .I have no idea on the financials of JJill but that's a company that is expanding and getting more popular with the over 30 crowd .I'd check it out .JJill is owned by Talbot's symbol TLB .

Appreciate getting your input, I wasn't aware of the Soma line. Think they also started a Black & White chain where everything is black & white? :-D
Wonder about that also. As far as the regular Chicos my wife likes and has no problem giving them our money.

She also has shown some interest in Coldwater - We are in our 50s - wondering if the older crowd gathers there.
Used to own J Jill way back before they got in trouble and got bought by Talbots...I'll take a look at TLB. Thks moemg

[Danny]

Quote:

Originally Posted by Hamlet I don't know a lot about those companies, but I would be reluctant to get involved in them, unless I had some reason to think that they were going to turn things around. They both had same store sales declines of 5-6% and very large earnings drops. I would rather own Walmart, currently at 14-15 times earnings. Their same store sales were up 1-2%. Not stellar, but compared to these two (and Kmart/Sears), pretty decent. I currently own Target, but if I was going to add money to retail right now, I would probably lean towards Walmart since it is so cheap. It also doesn't have the credit risk exposure that Target's credit card division gives it. If we get a serious recession, Target could face serious issues with its credit card business.

I'm a big owner of Target also.
As a retired Target exec, I have full confidence in the current top notch management and the way they manage the credit business.

Walmart tried to be like Target recently - they ended up confusing their existing guests, had no chance of stealing Target's, have hired ex-Target mgrs - they will eventually come back to the Target fold (they usually do) - a sign of desperation and confusion by Walmart. Target has been building their brand and identity for decades - they never tried to be like Walmart, which is what made Kmart a non-factor today.

[Danny]

Quote:

Originally Posted by terminator Retailers that happen to be on my tracking lists that look reasonably priced now to me are WalMart WMT, Staples SPLS and Tractor Supply TSCO. I don't know anything about CWTR or CHS. That said, I've never owned any retailers other than HD/LOW because (1) it's usually an ultra-competitive, low margin business (2) it usually requires a lot of debt to build out a chain so the companies have high levels of debt (not to mention long-term leases, inventory and other overhead), (3) it's hard to develop a systematic advantage over competitors when they are all selling the same products and correspondingly it's difficult to stay on top for a long time (or to identify those companies that will persevere). It also seems like when a retailer falls on hard times (and I can think of dozens of "big" chains that have come and gone around here) that it is more likely that they go bankrupt or go out of business and have their assets picked over leaving shareholders empty handed -- instead of being being bought out by a competitor. That may go back to the large indebtedness and overhead since when they lose 5% of sales most of their expenses stay the same. JMHO of course.

These are very valid points.

There will be some weak "sisters" in womens retail that will disappear in the next few years during the coming downturn I see in consumer spending...the game is to find the strong nimble ones who will take the losers' market share and continue to provide an attractive, compelling retail experience.

[Hamlet]

Yes, Walmart needs to get back to basics. They remind me of McDonald's a few years ago. McDonald's reached the point where they couldn't keep growing, and they started doing all sorts of desperate things to try and keep getting bigger. The dollar menu stuff, buying up other concepts (although Chilpolte worked out), letting stores get slow and unclean, etc.

At a certain point they accepted that they weren't going to get much bigger, and focused on running their existing stores as well as possible. Instead of opening new stores, they took the profits and increased their dividend and bought back stock. They've been a very good investment since.

I think Walmart will go back to basics before too long. They may languish for the next year or two, but I think they will be a decent investment from here, and potentially a great investment if their stock falls much further.

Quote:

Originally Posted by DanTien I'm a big owner of Target also. As a retired Target exec, I have full confidence in the current top notch management and the way they manage the credit business. Walmart tried to be like Target recently - they ended up confusing their existing guests, had no chance of stealing Target's, have hired ex-Target mgrs - they will eventually come back to the Target fold (they usually do) - a sign of desperation and confusion by Walmart. Target has been building their brand and identity for decades - they never tried to be like Walmart, which is what made Kmart a non-factor today.

[laurence]

Target has a cache (thus, Tar-Gey) about it that is so valuable to companies. DW and I shop there all the time simply because it's a pleasure to be in the store. It's worth the extra 5% it costs over Wal Mart to not have overcrowded, over narrow aisles, actual ceilings, some clothes we would actually wear etc. The store just seems layed out perfectly. Meanwhile, DW's 13 year old sister and her friends would much rather be seen in a Target than a Wal Mart.

[Danny]

Ended-up buying CBK - Christopher & Banks today. Managed to have a 2% increase in same store sales and 7.5% over all for Aug. Lot better than Chicos. CBK's Website

[fmhealth]

Bought both CHS & CWTR a few years ago at my wife's urging. Enjoyed tremendous price appreciation & a number of splits along the way. I believe we're now in the RED with both of these positions. It's dificult for even the best management to be spot-on in terms of fashion trends.

I do believe that both of these companies will rebound & that now is not a bad time to give them a thorough once over. Could see a 25% appreciation by early '08. PLEASE do your own DD.

[Danny]

Shares of Target Corp., one of the largest U.S. retailers, rose in Thursday pre-market trading after it said that it may sell $7 billion in credit-card receivables in the wake of pressure from activist hedge fund investor Bill Ackman. The company also said it will re-evaluate its use of debt and the pace of share buybacks. Shares were up 2% in Thursday pre-market trading.

Think this bodes well for more share repurchases - especially Billy's...



Target mulls sale of credit card receivables

[twaddle]

What does that say about management if it takes an activist investor for them to do the right thing? Or, if it's not the right thing, why are they caving?

[Achiever51]

Absolutely love Target, both as a shopping experience and as a stock.

Haven't owned Coldwater Creek, but have followed it for awhile.

Did own Chico's for a nice run up several years ago (bought at 16; sold at 42. bought again at 28 and sold around 40). The stock really started to drop just as Chico's founders (a husband and wife team) were leaving the firm -- I took that as a sign to get on the sidelines. The stock hasn't bounced back yet.

[Danny]

Quote:

Originally Posted by twaddle What does that say about management if it takes an activist investor for them to do the right thing? Or, if it's not the right thing, why are they caving?

1st focus has been on using credit as a tool to drive traffic - this has been a success - making good money is a nice bonus....has been debated by management for years. Goldman says the following about the latest announcement - "In the event of any credit portfolio transaction, executives have stated their plan to retain formal control over the operations to ensure continued customer service levels."

Also Bear has this take - "Recent macro issues may have led management to reconsider its stance," Bear Stearns analyst Christine Augustine said in a note. "Management could be forecasting more turbulent times ahead in its credit business. Credit-card sales would have to be accretive for management to consider it."

If they do monetize credit they will realize the proceeds from the sale, yet also retain operational control - ideal outcome. Having Goldman evaluate doesn't mean it will come to pass. A good possibility. I think the re-leveraging of the capital structure to foster stock buyback is a likely outcome.
It's debatable what is the right thing, whether they are caving or being savy in the current credit and hedge fund activism environment.

[Danny]

Quote:

Originally Posted by Achiever51 Absolutely love Target, both as a shopping experience and as a stock. Haven't owned Coldwater Creek, but have followed it for awhile. Did own Chico's for a nice run up several years ago (bought at 16; sold at 42. bought again at 28 and sold around 40). The stock really started to drop just as Chico's founders (a husband and wife team) were leaving the firm -- I took that as a sign to get on the sidelines. The stock hasn't bounced back yet.

Nice!