Stock of the Day
Apr 22, 1999
Bombay Company: Is the Turnaround for Real?
By: Glenn S. Curtis 4/22/99
Is Bombay Co. (NYSE:BBA - news) finally turning things around?
Afterall, in the five-week period ending April 3, same store sales swelled by 14% while total sales were up 18%. For the latest nine-week period, same store sales were up 6% and total sales rose 9%. This compares to a same store sales decline of 3% in February.
Granted, we're only talking about a couple of months. As Sanders Morris Munday analyst Lynn Detrick notes, "One month is a good sign that things may have turned, but I wouldn't yet call it a pattern."
Long-time investors in Bombay, the former Tandy Brands, will take any good news, however. Afterall, we're talking about a company whose revenue for the most recent fiscal year (January 1999) was just 12.6% higher than it was back in 1994 while operating earnings were 82% below the level of 1994.
No surprise, shares of the specialty retailer of traditional furniture and accessories sank to a March low of $3.56 from its 1994 high of $32, before recovering on the recent good news to $5.63.
Its problems: Let's see. Stiff competition, poor management and store closings. It also stuck with its old-fashioned displays of mostly dark wood tones and was slow to modernize its offerings and displays.
In 1998 the company swung into action, however. It hired a new president and COO, Carmie Mehrlander, who was a divisional vice president of Sears Merchandise Group. It also hired Brian Priddy, another former Sears exec, to be senior v.p. of stores. The company also recruited other key people from Service Merchandise and
Pier 1 Imports.
The new management team has focused its efforts on redefining itself as a more customer friendly, competitive furniture and accessory retailer. The company is opening stores that are slightly bigger--2,500 to 3,500 total square feet--than older stores, which averaged 1,500 square feet. The company is also retrofitting its stores with new displays and a fresher look, which are supposed to be more appealing to the consumer.
According to First Union Capital Markets analyst Ralph Jean, "the company is focused on adding more impulse items at stores such as framed art, candles, crystal, picture frames and mirrors."
Don't get too excited, however. Going forward analysts anticipate a more modest same-store sales growth rate in the mid- to high single digits. Concedes Mehrlander: "June will definitely be a tough comparison (for comparable store sales). But the company has come a long way in rediscovering who its customer really is. We have
introduced the lighter woods (for a more casual look), modular furniture, metal and glass products. The consumer is starting to respond, and things look to only get better from here."
The core growth will come from the company's 414-store base. Indeed, next year Bombay intends to open just five stores (net), choosing to remain conservative and focus on the profitability of existing locations before extending. Does the recent good news portend better times for the flailing furniture company? Insiders seem to be willing to make a small wager. Officers and directors purchased over 70,000 shares in the open market since the new year at prices ranging from $3.88 to $4.13 per share. The company itself also repurchased 1.2 million shares in the most recent quarter at an average price of $5.16 per share. The company is authorized to repurchase up to $10 million of stock in the open market.
From a fundamental standpoint, the shares don't seem to offer a lot of risk. They trade at just 0.6 times sales, 1.3 times book value and about 24 times this year's earnings estimate of $0.22 per share on $396 million in revenue. In fiscal 2001, analysts think the company could net $0.32 per share on $435 million in revenue.
Bombay also has $52.8 million in cash and is debt free. According to Detrick, "It's the clean balance sheet that makes this company attractive and gives them the room to turn things around."
Bottom Line:
Bombay appears to be emerging after several years of neglect. If it is able to continue to improve same store sales and compete aggressively in the highly fragmented retail furniture market, we think that patient shareholders will be rewarded handsomely over the next year.
For more in-house professional stock analysis and commentary, visit us at Individual Investor Online.
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And to think I was almost ready to sell. I have played this stock between $4-$6+ several times in the last two years but we may be ready to shake out of the old pattern.
Good luck to the few who are left following this puppy, Dave |
