Retail took it on the chin yet again on Friday; this time it was Foot Locker's (FL) turn for devastation. The company narrowly missed consensus estimates on both revenue ($2 billion versus $2.02 billion) and earnings per share ($1.36 versus $1.38 consensus), but was punished severely for this crime as shares fell 17%. Foot Locker is no Sears (SHLD) or JC Penney (JCP) , the best days of which are long past, both barely holding on and arguably in death spirals. Nor is it a Tuesday Morning (TUES) or Sears Hometown and Outlet Stores (SHOS) , both smaller players that also are struggling.
Foot Locker is a somewhat under-the-radar success story, with a solid balance sheet, $1 billion in cash and just $127 million debt. Its shares rose from $10 in 2010 to $78 this past December. It grew sales and the bottom line primarily via more than 3,300 mall-based stores -- not exactly the thriving environment it once was. It has increased the dividend for the past seven years and reduced shares outstanding by 15% during that same time frame. It has solid net profit margins for a retailer (8.6% for fiscal 2017) and trades at about 10x next year's earnings.
Unfortunately, not much of the above matters these days as the markets continue to batter retailers. Meeting consensus estimates -- or getting close in Foot Locker's case -- does not impress these days, nor does a solid balance sheet or compelling multiples. It's a buyer-beware market; if you think something is cheap, don't be surprised if it gets even cheaper after you take a position.
Two months ago, I put Vera Bradley (VRA) on my radar. As a value investor, I typically take my time before taking a position in a particular name. That is a function of learning to be patient after jumping the gun too often on ideas. In VRA's case, shares are down another 9% since that column ran, in sympathy with the industry as retailers report results and continue to get hammered.
For what it's worth, Vera Bradley now trades at 1.74x net current asset value and just under tangible book value per share, with $3.22 per share in cash and no debt. Not much other than the stock price has changed in the past two months, but the company did announce in April that it is entering the medical uniform business, for whatever that's worth. VRA is expected to report first-quarter earnings on June 2, and the consensus is calling for a 13-cent loss on revenue of $96.6 million.While I've yet to pull the trigger on VRA, any retailer that I'd even consider these days would need to have a solid balance sheet, lots of cash to see it through to better times, low levels of debt and preferably a solid brand name -- one that might be worthy of being acquired by a bigger fish.