Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Claire's Stores (CLE) NYSE -- Ignore unavailable to you. Want to Upgrade?

To: Ram Seetharaman who wrote (616)	9/7/2000 5:54:57 PM
From: Ram Seetharaman	Read Replies (1) \| Respond to of 619

Thursday September 7, 5:00 pm Eastern Time worldlyinvestor.com Sector of the Day This Stock is Fashionably Low Glenn S. Curtis, Columnist Claire's Stores has suffered like other retailers, but it is no longer plagued by Afterthoughts. It was an awful summer season for retailers and investors have been no doubt nervous about stocks they may own in the sector. But it actually might be a good time to start buying some select retailers. Take Claire's Stores (NYSE:CLE - news) for instance. A retailer of fashion accessories and apparel, Claire's has taken its lumps along with most other players in the retail sector lately, but the prospects for the company are good. The company had trouble integrating a pretty hefty acquisition it made in 1999. Add to that the generally weak retailing environment. But this has already been factored into the stock, and patient investors should use this opportunity to accumulate shares. Weak Afterthoughts Claire's managed to disappoint the Street in the second quarter ended July 29. Consensus estimates had the company earning 36 cents a share in the period. Claire's turned in just 34 cents a share. The company blamed the weakness on the integration of accessory chain Afterthoughts, a $250 million acquisition in December1999. It seems the company spent a lot of time and money implementing things like new payroll systems and trimming other redundant overhead. But problems with Afterthoughts seem to be behind them. As a matter of fact, sales for the quarter increased 35% from a year ago. On a consolidated basis, same-store sales were off 1% for the quarter -- not exactly stellar, but also not as bad as some of the other players in this sector. More important is the fact that inventories appear to be under control. And with kids going back to school over the next few weeks, the company is in a good position to have a great second half of the year. Sensing value, the board of directors authorized a $50 million share-repurchase program in May. To date, the company has repurchased more than $30 million in common shares and is likely to be in the open market buying stock prior to the third-quarter earnings release. Although the company has more than $103 million in cash and investments on its balance sheet (about $2.05 a share), the fact that the company is willing to lay out its precious capital in these uncertain times is a great sign that better times lie ahead. Institutional Noshing In addition to the company, institutions are also once again nibbling at the stock. While Fidelity sold some shares in the second quarter, it continues to holds more than 9% of the common shares outstanding. Big-name buyers of the stock in the second quarter ended June include Putnam and Neuberger Berman. Going forward, I think institutional interest will be dependent in large part on management's ability to show accelerated earnings growth. But waiting for institutions to buy en mass before getting in wouldn't be a smart move. Considering that the stock trades 350,000 shares a day, a large amount of buying pressure would almost certainly exhaust the supply of stock available for sale, driving up the share price. At the end of the second quarter, Claire's was operating 3,054 stores. This number includes all Claire's outlets, its Afterthoughts concepts, Mr. Rags (a retailer of teen specialty wear) stores and just a handful Velvet Pixies stores (an apparel outlet targeted towards preteen girls). And while its store base has more than doubled from the 1,602 stores it maintained just three years ago, management will be conservative in their efforts to expand from there. In fact, absent any acquisitions, the total store count will likely remain in the same range for the foreseeable future: Management plans to close up to 300 underperforming stores through 2001, while adding about 250 stores in the current fiscal year. Fattening the Bottom The 300 stores to be closed contribute just over $70 million in revenue on an annualized basis. But, according to a recent research report by Buckingham Research analyst Barbara Wyckoff, these stores cost the company about $2 million in annualized operating losses. So shutting the doors on these stores will seriously help boost the bottom line. In short, this is more of a block-and-tackle story in that management will be more focused on increasing profitability and rebuilding investor confidence over the next year rather than simply driving revenue growth. Assuming that interest rates remain stable and consumer confidence stays relatively healthy, Claire's is an extremely attractive investment. Value investors will note that Claire's trades at roughly 2.8 time book value ($7.45), just 1.1 times sales, and at 8.9 times 2002 earnings estimates (ending January), a sharp discount to an anticipated growth rate of 24%. A share price of $26, or 11 times forward estimates, would be a much more reasonable representation of Claire's true worth. But it will take some time. This battered retailer will not only have to turn in consistent earnings, but to a degree, its rebound will also be dependent upon a bounce back in the sector. Glenn Curtis is an analyst for worldlyinvestor.com. Prior to working at worldlyinvestor.com, he was an analyst at InsiderTrader.com, a financial Web site, and at Cantone Research, a brokerage firm in central New Jersey. Curtis is series 6, 7, 24, and 63 licensed. He does not own a position in any of the companies mentioned. Positions can change at any time. Go to www.worldlyinvestor.com to see all of our latest stories.