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 demand for products and service of this company has been strong in US and international markets in the past three years as indicated by positive growths in comparable sales (including e-commerce) during the same period. Sales increased in faster pace in 2018 driven by ecommerce, in-store traffic (both US and international), and fuel price.

The first six months of fiscal 2019 compared with same period of 2018 (ended 20180731)

Comparable sales (US, including e-commerce) increased 3.5% (4.7% for 2Q) driven by both transactions and transaction size. Ecommerce contributed about 1% in growth of comparable sales.

Comparable sales (international) increased about 7.7% (7.7% for 2Q) driven by increase in comparable sales.

The fiscal 2018 compared with 2017

Comparable sales (US, including e-commerce) increased 2.1%.

Comparable sales (international) increased about 3.4%.

Fiscal 2017 compared with 2016

Comparable sales (US, including e-commerce) increased 1.6%.

Comparable sales (international) increased about 1.5-2%.

Fiscal 2016 compared with 2015

Comparable sales (US, including e-commerce) increased 1.0%.

Comparable sales (international) increased about 1.5-2%.

Its gross margin has increased by about 60 basis points to about 25% in 2017 due to higher margin in some of products categories. Due to the increase in SG&A as percentage of sales (from 19% to about 21% in 2017) as a result of increased wage expenses in its US stores, its operating margin thus went down to about 4% from about 6% since 2014. Margin decreased slightly in 2018 due to increased expenses in operating and ecommerce.

Stock price

This stock currently has a stock price/cash flow ratio of 25 ($95). We think that its stock is being relatively fairly valued compared with its peers.