Sector financial performance:

This company, which is primarily a mass merchandise retailer, has been grouped into mass merchandise stores sector in household goods& service industry.

It seems that there has been a downward pressure in stores sales between 2015 and 2017 in US market as indicated by dada of companies in this sector that growth in comparable store sales slowed down (or went negative). However, it seems that things made a turnover in first half of 2018 when companies generated a large store sales growth of 3%, driven ecommerce and traffic/transactions, compared with a flat growth prior year. Sales from e-commerce seem to have been increasing strongly in the past several years. It seems that the growth in comparable sales in international market has kept higher during the same period. It seems that companies have still been able successfully to increase the sales by opening new stores.

As a result, we have seen slight changes in the averaged gross margin of the typical companies (around 27% in 2018). The typical averaged operating margin went down by about 100 basis points to about 5% due to an increase of about 100 basis points in SG&A as percentage of sales (about 22) as a result of raised wage.

The typical average enterprise price/EBI ratio is: 23(interest/EBI ratio of 17%) and stock price/sales ratio is about 0.58.

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Company performance:

It seems that the traffic had slightly declined in this company’s stores in 2015/2016 but rebounded back in 2017 and jumped in 2018 so far as indicated by growth rate of comparable sales (store only), which are 3.6%, 0.1%,-1.5% for 2018, 2017 and 2016 respectively.

Its e-commerce sales have increased quickly (average 20% annual growth rate since 2015, account for about 5% of total revenue).

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

Comparable sales (including e-commerce) increased 4.8% (6.5% for 2Q) due to increase of 5% (6.4% for 2Q) in transactions offset by decrease of 0.3% (up 0.1% for 2Q) transaction size.

Comparable sales (stores) increased about 3.6% (4.9% for 2Q).

Comparable sales (e-commerce) increased about 26% (30 for 2Q)

The fiscal 2017 compared with 2016

Comparable sales (including e-commerce) increased 1.3% due to increase of 1.6% in transactions offset by decrease of 0.3% transaction size.

Comparable sales (stores) increased about 0.1%.

Comparable sales (e-commerce) increased about 24%.

2016 compared with 2015

Comparable sales (including e-commerce) decreased 0.5% due to decrease of 0.8% in transactions offset by increase of 0.3% transaction size.

Comparable sales (stores) decreased about 1.5%.

Comparable sales (e-commerce) increased about 20%.

Fiscal 2015 compared with 2014

Comparable sales (including e-commerce) increased 2.1% due to increase of 1.3% in transactions and increase of 0.8% transaction size.

Comparable sales (stores) increased about 1.3%.

Comparable sales (e-commerce) increased about 16%.

Its gross margin had decreased by about 50 basis points to about 29% in 2017 due to higher fulfilling costs related to e-commerce. Due to the flat increase in SG&A as percentage of sales (around 23%), its operating margin was flat at about 6% in 2017. Gross margin and operating margin decreased slightly since 2017.

Stock price

This stock currently has an enterprise price/EBI ratio of 21($88). We think that its stock is being relatively slightly undervalued compared with its peers.