This company, which primarily operates specialty stores and websites of eCommerce selling entertainment products, including trend, video, music, electronics and related products in the United States and operates online stores through third party marketplace selling products including health & personal care, home/kitchen/grocery, tools/office/outdoor, and baby, has been grouped into video and music store sector in video &audio goods and service industry.
It seems that demand for in-store video and music products has been significantly declining in the past several years as indicated by the largely decrease in same store sales of some typical store in this sector (about 9% annual declining). But in store demand for lifestyle products seems to be still strong, which may imply that slowing down mall traffic may not be the only reason for store sales declining in the past several years and the type of media and sales channel may be.
The large decrease in price (markdown) has significantly hurt profitability of those stores while impact of deleveraging as a result of decreased sales has been offset by stores closure. The typical company in this sector has an about 32% gross margin in 2018 with a SG&A as percentage of sales of about 38% and operating margin of -6%.
The typical enterprise price/sales ratio is 0.1 (12 months trailing).
It seems that the demand for its store products (video and music mainly) has been continuously declining since the second half of 2006 as indicated by about average of 9% annual decrease in its same store sales accompanying with largely store closures during the same period. Demand for its products selling through third party marketplace seems to strong and keep growing.
The first quarter of fiscal 2018 compared with 2017(ended May 05, 2018)
Net revenue in their own store (including ecommerce) decreased 17% driven by decrease of 8.5% in same store sales and decrease of 7% due to stores closure.
Net revenue in third party marketplace increased 15%.
Fiscal 2017 compared with fiscal 2016
Net revenue in their own store (including ecommerce) decreased 15% driven by decrease of 8.7% in same store sales and decrease of 8.5% due to stores closure. Volume decreased 11% and price decrease 8%.
Fiscal 2016 compared with fiscal 2015
Net revenue in their own store (including ecommerce) decreased 8% driven by decrease of 3.6% in same store sales and decrease of 5% due to stores closure. Sales volume decreased 7.5% and price decrease 2%.
Its gross margin (merchandise costs) has been down from 40% of 2015 to 32% of 2018 due to significant markdown of its products. This company’s SG&A as percentage of sales was basic flat (about 38%) during this period with impacts from deleveraging of decreasing sales and improved store expense due to closure of stores. And we have seen that its operating margin down to about -6% in 2018.
Stock performance
Currently, this company has an enterprise price/sales ratio of about 0.1(12 month trailing).We think this company’s same store sale has been continuously declining for two years and the trend did not seem to be slowing. The increase in its sales from third party marketplace seems not to be able to offset its loss in cash flow in physical stores due to lower margin and uncertain competition. We think this stock may still be overvalued.
