The news in retail apparel seems to be getting worse and worse. Whilst I still think ARO is generally cheap I am attempting to cut up the position into a more diversified retailer position of roughly the same size. There are a few companies comparable to ARO that are kind of cheap like American Eagle Outfitters (NYSE:AEO) but there are some opportunities to take a slightly more diversified approach. Three companies that I have highlighted and will look at the next month or so are Citi Trends (NASDAQ:CTRN), hhgregg, Big Lots and Big 5 Sporting Goods. These are companies that have just come on up on my screens so I haven’t done any extensive research yet although I am somewhat familiar with Big 5 and Big Lots.
The first company I will look at is Citi Trends, a value-priced retailer of both branded and private label urban apparel with around 460 stores in 27 states. CTRN is most comparable to companies like TJX Companies (NYSE:TJX, runs TkMaxx stores) and Ross Stores (NASDAQ:ROST) in that it takes an opportunistic approach to buying often purchasing for the current season or, to a lesser extent, buying to hold for a later seasons. However, besides being far smaller it operates within a niche, of sorts, focusing on African-American consumers and offering womens, mens and kids clothes. A more subtle difference, but one I believe is important, is that the products are displayed by brand rather than size, the focus for CTRN is on providing branded goods at cheap prices. CTRN aims to sell these brands at prices 60% below comparable apparel available in department stores or elsewhere. We can see from the above table that given past results CTRN looks a bit, but not massively, cheap. The share price has been in freefall roughly since April 2010 losing 50% of its value, driven by declining same store sales. I will look at three main factors:
- Operating metrics
- Financial position
- Recent trends/Economics of the business
- Competitive Position
- Valuation/Conclusions
Looking to the usual metrics, we see that margins have been steady whilst it has been turns in net operating assets that have led to declines in return on operating assets. Inventory turns are obviously a big part of the retail apparel business…
