3 Retail Tales Only a Deep Value Investor Could Love

 | Jul 31, 2017 | 9:14 AM EDT
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It has been an interesting couple weeks in retail, highlighted by an "on the radar" situation, an "off the radar" situation and the discovery of a new retail double-net.

First, Sears Holdings Corp. (SHLD) , which I and many others believe is in a death spiral, received some positive press on July 20 when it announced a deal with Amazon.com Inc. (AMZN) to sell its Kenmore appliance brand on Amazon.

I must admit, when I first saw the story, I mistakenly thought Sears was selling the Kenmore brand to Amazon. That sale has been expected for quite a while; the company already has jettisoned Lands' End Inc. (LE) via a spin-off, sold Craftsman Tools to Stanley Black & Decker Inc. (SWK) and a pile of real estate to Seritage Growth Properties (SRG) in order to keep the ship floating a while longer. That leaves the Kenmore and DieHard brands as the remaining gems.

Sears Holdings rose as much as 24% on the day of the announcement and closed that day up 11%, but has been giving back those gains as the dust has settled. The news put some initial pressure on leading appliance sellers Home Depot Inc. (HD) and Lowe's Cos. (LOW) , but the latter has recovered and HD is down about 3% since the announcement. However, appliance manufacturer Whirlpool Corp. (WHR) is down 10%.

I don't believe there is much of a story here outside the initial headline; the appliance business remains incredibly competitive, and the move will not save Sears Holdings.

Outside the mainstream, late Thursday retailers Destination Maternity Corp. (DEST) and Orchestra Premaman S.A. called off their plans to merge, citing regulatory issues. Destination Maternity, which traded at around $32 a share in 2013, took a 42% hit in Friday's trading. The most interesting part of this story is that Premaman still owns nearly 14% of DEST -- a stake that ultimately could put more pressure on the shares, although there are some restrictions in place on the sale of those shares.

Finally, there's a fairly new addition to double-net land (stocks trading at between 1 times and 2 times net current asset value. It's Hibbett Sports Inc. (HIBB) , a regional sporting goods retailer specializing in athletic footwear that has 1,082 stores in 35 states.

More than half of last year's revenue (52%) was from footwear, an incredibly challenging segment (but what's not challenging in retail these days?). While net profit margins have slid from 8.9% in fiscal 2015 to 6.3% last year, at first glance you'd have to wonder whether the punishment fits the crime. Hibbett shares are down 58% over the past year and trade at less than eight times next year's consensus estimates. For what it's worth, for a small name with a $324 million market cap, the consensus is large, with 18 analysts covering the name.

But there's a lot weighing on Hibbett at this point, given last week's announcement that second-quarter same-store sales may be down as much as 10% and that earnings will be in negative territory for the quarter. That news sent shares down 33% last Monday. By the end of the week, they regained 14%, but a bigger question lingers -- namely, is the second quarter an anomaly, or is Hibbett yet another victim of brick-and-mortar retail's decline

Currently trading at 1.52 times net current asset value and 0.97 times tangible book value per share, Hibbett's balance sheet is fairly clean. The company ended its latest quarter with $76 million, or $3.55 per share, in cash and less than $1 million in debt.

Hibbett is seemingly cheap on paper, but it's unclear whether the company's current issues are a one-off or a trend.

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