NYSE:SSI Stage Stores, Inc

Sector financial performance:

This company, who primarily buys and retails lifestyle/casual clothing for men and women mainly through their own stores (department stores and off-price stores) and ecommerce sites, has been grouped into casual clothing retailers sector in clothing industry.

Between 2015 and 2018, there was a clearly downward but slowing trend on comparable stores sales for companies in this sector as indicated by our data that average comparable sales decreased by 11% in 2016, 5% in 2017, and 1% in 2018. The sales declined quickly in 2016 driven by decreasing transactions while significant markdowns and discounting. However, since the second half of 2017 it seems that the decline in comparable sales of companies slowed down probably due to increasing consumers’ demand (traffic as indicated by rebounding price) and contribution from strong ecommerce performance.

As a result of price deflation (promotion/markdowns) and deleveraging of stores operating costs, companies’ gross margins decreased up to 600 basis points with an average decrease of 450 basis points in 2016 and 2017. Plus the deleveraging of SG&A costs as a result of decreased sales, companies’ operating margins decreased up to 800 basis points with an average of 650 basis points. We see companies’ sales and profitability in this sector were impacted much bigger than those retailers who own and manufacture for them own stores probably as a result of intensive price competition.

The current average gross margin is 32% (with a large range) in this sector (distribution costs and occupancy costs included) with an average SG&A as percentage of sale of 26%. And this makes an average operating margin of 6%.

According our analysis, companies’ enterprise price/EBI ratios are 13 with interest/EBI ratios of 0%.  Companies’ enterprise price/sales ratios are 0.2 with interest/EBI of 30%.

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Company performance:

Data indicated that casual apparels sales of department stores had decreased in 2016/17 as indicated by decrease of 9% and 4% in comparable sales for 2016 and 2017. However, it seems that the declining comparable sales is slowing down and may be rebounding back up in 2018 as indicated by less decrease in transactions and rising price.

The first six months of fiscal 2018 compared with the same period of 2017(ended 20180804)

The organic sales of this company decreased primarily attributable to stores closure and decrease of about 1.5% (0.2% for 2Q) in comparable stores sales including decrease in transactions counts.

Fiscal 2017 compared with 2016(ended 20180203)

The organic sales of this company decreased about 5% primarily attributable to stores closure and decrease of 3.6% in comparable stores sales including decrease in transactions counts offset increase in transaction size (higher unit price).

The net sales of this company increased about 2.2% in first half of fiscal 2017 compared with 2016 primarily attributable to new stores opening offset by decrease of 6.6% in comparable stores sales including decrease in transactions counts offset increase in transaction size.

The net sales of this company decreased about 10% in fiscal 2016 compared with 2015 primarily attributable to closure of stores and decrease of 8.8% in comparable stores sales including decrease in transactions counts offset increase in transaction size.

The net sales of this company decreased about 2% in fiscal 2015 compared with 2014 primarily attributable to decrease of 2% in comparable stores sales.

This company’ gross margins was about 20.6% (distribution included and stores rental costs included) in the middle of 2017down from about 27.5% of 2014 primarily due to markdowns and deleveraging of costs as a result of decreased sales. As its SG&A as percentage of sales increased to 25.4% as a results of deleveraging of costs and acquisition related expenses, its operating margin went down to about -5%. Since 2017, as less markdowns and cost saving, its gross margin has gone up to about 22% and operating margin improved to -3% in 2018.

Stock price

This stock currently has an enterprise price/sales ratio of 0.2 ($2). We think that its stock is being relatively slightly overvalued considering the difficulty for this company to improve its margin.

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