3 Stocks to Evaluate After Yesterday's Market Hiccup

 | Aug 18, 2017 | 9:00 AM EDT
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Stock quotes in this article:

cato

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hibb

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zoes

Yesterday's little market hiccup represented the third time in the past six trading days that the S&P 500 has closed up or down more than 1%, the basis for my rather naïve yet very simple definition of market volatility. Prior to Aug. 10, there had only been three such "volatile" days year-to-date in 2017 -- a remarkably calm market, especially given the explosive environment on many fronts. Where we go from here remains to be seen, but I'd expect a great deal more volatility. The market, however, with a mind of its own, may have different plans.

Certain segments of retail continues to wallow in a mini-depression of sorts. Yesterday, Cato Corp.  (CATO) slid another 12% after reporting even worse-than-expected -- and expectations were already low -- second-quarter results. The company lost $0.03 per share, well below the positive $0.11 consensus estimate. Revenue of $207 million was off by $2.5 million. There was not much good here from an operations perspective, with gross margins falling 590 basis points, and same-store sales off 14%.

However, cash flow was positive for the quarter, and the company ended the quarter with $241 million, or more than $9 per share in cash, and no debt. This gives CATO a potentially long runway in terms of attempting to turn around. But that won't be easy, and will be an uphill battle. Whether this is a falling knife, value trap, or potentially cheap turnaround story, I am not sure yet. Meanwhile, the dividend yield is now in excess of 10%. Stay tuned.

Early this morning, Hibbett Sports (HIBB) , which has been suffering from its own severe bear market, released second-quarter earnings. The reported loss of $0.15 per share was $0.05 better than expected, while revenue of $188 million missed consensus estimates by $2.2 million. Same-store sales were off by 11.7%. The company reduced full-year 2018 earnings guidance to a range of $1.25- $1.35 per share.

An ugly quarter for sure -- much of it already reflected in a stock price which is down nearly 70% year to date, but which may come under more pressure in today's trading. The company continued to buy back stock, repurchasing 282,609 shares for $6.9 million, or an average of $24.42 per share. That certainly does not look good at this point, with shares currently trading in the $11.50 range. Cash ended the quarter at $52.8 million or about $2.50 per share, and the company has no debt on the books, but $80 million in available unsecured credit facilities.

Finally, restaurant name Zoe's (ZOES) , which has also been in the dumps year to date -- it was down 43%, but has popped up about 15% over the past four trading days -- may give some of that back today, after reporting second-quarter earnings after yesterday's close. Breakeven earnings per share missed the $0.02 consensus, while revenue of $74.3 million missed by about $800,000. While the company opened 13 new outlets during the quarter, and now has a total of 227 (224 company-owned, 3 franchises), same-store sales were down 3.8%.

I still believe this is one of the freshest concepts in dining, and picked a good entry point given a long-term view. However, the company needs to deliver, lest it becomes the next Cosi -- also a good concept that never turned a profit, and ultimately filed for bankruptcy.

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