It looks like some specialty stocks in the apparel sector have fallen out of favor, most-likely because of economic changes. I’ve just put four of them on my watch list.
Stein Mart (SMRT) is actually trading near 5-yr lows and it looks like there’s a good reason for the new lows. Profits have been steadily and significantly decreasing over the past four quarters, with the most recent quarter posting a loss ($+0.37 –> ($-0.06)). The company also predicts extended losses into the next quarter ($-0.15). According to management:
The current environment is difficult for retailers in general, and particularly for companies like ours that cater to the “missy” customer. Our target customer has simply not been tempted to shop for apparel, either because the current fashion does not excite her, she is worried about the economy, or both. At the same time, our larger competitors have gone to extraordinary lengths to attract customers, including steep discounts off regular price merchandise which makes competing even more difficult for an everyday low price retailer like Stein Mart. We also continue to have problems with our Home business that has continued to track well below the Company trend. Improving the productivity of this area is a priority, but in a soft housing market, this will be challenging.
So, why am I watching SMRT? Although they do need to make some internal marketing/business changes to improve the bottom line, I don’t see this as a significant fundamental flaw in the way SMRT conducts business, but more of a cyclical trend.
SMRT is a fundamentally sound company currently trading at what I consider undervalued prices. It’s trading far under book value and carries very little debt. It should be able to weather further economic downturns, and rebound when the economy eventually turns around.
There are also three other specialty apparel stores that I’ve included in my watch list under the same reasoning.
Similar to SMRT, they are trading at yearly (or longer-term) lows, but all three of these companies carry NO long-term debt. They should all be withstand any short-term losses without being at risk for failure.
I don’t see any near-term changes for improving profits, so there’s still a good chance prices could fall even further… hence being placed on my watch list. Let’s see what happens over the next six months.
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