Sector financial performance:
This company, who is primarily retailer of women lifestyle shoes with third party brands and its own brands and as well wholesaler of its own brands, has been grouped in women lifestyle footwear retailer sector.
The average growth in comparable stores sales of typical retailers in this sector has been down from 1.5% to 0% since 2015. It seems the extent to which this downward trend has influenced on companies’ sales varies depending on products. Premium footwear products seem to have been less impacted. However, when demand (transactions) comes back as we have seen in the first half of 2018, those who were influenced deeper seem to be re-bouncing faster. Comparable sales increased about average 6-7% in 2Q of 2018 just a reflection of increasing transactions and higher price/fewer markdowns as traffic come back.
When facing the downward pressure in traffic before 2018, companies have tried to maintain their sales by either acquisition or expansion of stores. Many of them had to lower price. As companies’ comparable sales bouncing back, while still struggling with wholesale, they have seen improved margins in 2018. The typical gross margin is about 42% (excluding distribution and occupancy costs) and 29% (including distribution and occupancy costs). With average SG&A as percentage of sales of 30%, the average operating margin is about 6% in 2018 (12 months trailing data).
According to our analysis, the current companies’ enterprise price/EBI ratio is around 20 with interest/EBI ratio of 8%.
The growth in comparable store sales seems to be getting faster after 2016 as indicated by the increase of 1.4% in its comparable store sales from its third party brand stores in 2017 and first half of 2018. The wholesale of its own brands accounts for 33% of total sales and also have been seen growing faster since 2016.
The first six months of fiscal 2018 compared with same period of 2017
Net sales increased about 2.3% (4.4% for 2Q). The comparable stores sales increased about 1.4% (2.6% for 2Q) (third party brands).
The fiscal 2017 compared with 2016
Net organic sales (excluding acquisition and extra week) increased about 0.9% primarily due to increase in comparable stores sales of about 1.4% (third party brands).
The first 26 weeks of fiscal 2017 compared with the same period of 2016
Net organic sales (excluding acquisition) increased about 1.4% primarily due to increase in comparable stores sales of about 1.1% (third party brands).
Fiscal 2016 compared with 2015
Net organic sales (excluding acquisition) increased about 0.1% primarily due to increase in comparable stores sales of about 0.6% (third party brands).
Fiscal 2015 compared with 2014
Net organic sales (excluding acquisition) increased about 0.2% primarily due to increase in wholesale and increase of 1.9% in comparable stores sales (third party brands).
Its gross margin (excluding distribution and occupancy costs) has increased by about 160 basis points since 2014 to 42% of fiscal 2018(trailing 12 months) primarily due to product mix’s shifting to higher margin. However, because the increase in gross margin has been offset by decreased SG&A as percentage of sales as a result of new stores opening and acquisition’s costs, this company’s operating margin keeps no change at 5% in 2018.
This stock currently has an enterprise price/EBI ratio of 19. We think that its stock is being relatively slightly undervalued considering relatively low ratio and the potential in better performance in its wholesales.