Magic 25
Feb 18, 2000
Claires Earnings Pace Views; Co. Outlines Strategy For Integrating Acquisitions
Research Analyst: Justin Oppelaar (2/18/00)
Claire's Stores (NYSE:CLE - news) announced strong fourth-quarter and full-year results on Thursday, matching analysts' expectations and marking its eighth consecutive year of record revenues and earnings.
Net income for the fiscal 2000 fourth quarter, ended January, was $0.91 a share, excluding an $0.11 non-cash charge related to the acquisition of the Afterthoughts chain, completed in December. The result was 26% higher than the $0.72 a share reported in the 1999 fourth quarter, and beat analysts' consensus estimates by a penny. Sales were 37% higher at $307 million.
Same-store sales came in 2% higher for the most recent fourth quarter, despite a 4% drop in comps in the month of January. Further, same-store sales for all of fiscal 2000 were 5% higher than1999. If the company can maintain or slightly expand those levels of growth heading into fiscal 2001, Wall Street will likely stand up and take notice.
For the year, Claire's earned $1.77 a share, up 21% from 1999's $1.46 a share. Sales rose 28% to $847 million. On the earnings call, Chairman and Chief Executive Rowland Schaefer noted that Claire's top and bottom lines over the past 12 years have grown at compound annual rates of 19% and 27%, respectively.
Claire's management reiterated that the integration of the Afterthoughts acquisition, which closed in December 1999, is going smoothly and should help push sales dramatically higher in the coming year. Afterthoughts adds over 750 new store locations to the Claire's stable, focusing mainly on the teenage girl market. By comparison, The flagship Claire's retail outlets target younger girls, typically between the ages of seven to 12.
The two concepts should complement each other very well and help Claire's leverage their customer base into a whole new age group. Management said the Afterthoughts operation will also benefit Claire's overseas stores, which will begin adopting some Afterthoughts merchandise into their product lines to broaden their appeal.
Elsewhere, Claire's executives said the acquisition of the Paris-based 42-store Cleopatre chain should close next week. Claire's plans to refit the Cleopatre stores in keeping with the traditional Claire's model, adding Claire's products to the Cleopatre inventory mix. The company expects the refit to be finished by the summer of 2000.
Claire's finished the year with 3,032 stores worldwide. The company said it plans to add a total of 250 stores in fiscal 2001, including 100 in North America, 70 in the U.K., 20 in continental Europe, 40 in Japan and 20 Mr. Rags outlets, which sell boy's clothing and accessories. The company also plans to shutter a total of 300 stores – 100 Claire's stores and 200 of its newly acquired Afterthoughts units – which have been under-performing. By trimming the laggards and concentrating on their best-performing stores, Claire's should be able to expand its margins and drive bottom-line growth in the coming year.
The earnings news reinforces our belief that Claire's is a solid, well-run retailer with a clear strategy for growth through both well-planned acquisitions and internal improvements. Further, the company throws off enough cash to continue its acquisition strategy without a hitch, as well as aggressively pay down its long-term debt load. We're sticking to our buy rating on CLE, and our $30 price target. Claire's shares have been rather languid so far this year, but that only makes them a better bargain. As the company continues to deliver steady comp sales growth, investors will likely see Claire's shares come back into vogue.
Updated: February 18, 2000 with CLE trading at $17.81
Recommended on December 10, 1999 at $21.19
(The Magic 25 is a diversified portfolio of stocks that Individual Investor believes will outperform the market over the course of the year. In 1999, the Magic 25 portfolio was up 79.3%. On average the portfolio has risen 31.6% annually.)
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