It's been quite a week for some of the survivors of the great small specialty retail Armageddon, which occurred last summer. Names left for dead as the markets and many investors wrote off the industry have sprung back to life, at least temporarily, and a great deal of money has been made by those willing to assume the risk. Some of these stories have matured, while others continue to unfold.
Cato Corp (CATO) , which suffered some of the worst same store sales declines last year that I've ever seen, continues its comeback. On Thursday, the company announced better than expected first quarter earnings (94 cents versus 87 cent consensus) and revenue ($236 million versus $229 million). Shares are up 27% since that report.
What's more, the balance sheet remains solid, with $218.6 million, or about $9 per share in cash, and no debt. The company's seemingly massive dividend -- at its February low, the yield was 12%, but has since fallen to 5.8% as the stock has doubled-- seems a bit safer, at least for now. Make no mistake, specialty retail, especially apparel is still an ugly business, but the market overly punished CATO (and others). Despite the solid run since February, CATO shares still trade at half of where they traded just three years ago.
Hibbett Sports (HIBB) , on the other hand, which had a string of four consecutive earnings surprises disappointed the markets early Friday, and paid the price. It was not a bad quarter, but the company missed consensus earnings estimates by 3 cents ($1.12 versus $1.15) and revenue by $2.7 million ($274.7 million versus $277.4 million), and fell nearly 16%, before recovering 6% yesterday.
Friday's punishment seemed a bit severe, but that's what can happen in such situations. HIBB was a $10 stock in August that nearly tripled over the past nine months as investors realized that it too had been overly punished. With that magnitude of a run-up, even a small earnings disappointment can wreak havoc on a stock price, once investors return to the fold, and resume interest in a name. HIBB is no longer off-the-radar, and being followed a bit more closely.
The company's balance sheet also remained solid, with $6 per share in cash and less than $1 million in debt. The company, a serial share repurchaser, did slow its buyback activity to just 40,000 shares during the quarter but still had nearly $204 million remaining on its current buyback authorization. While the "easiest" money (and it's never easy) has clearly already been made on HIBB, it still trades at just 13 X next year's consensus estimates.
I did part ways with part of my HIBB position in late January and used some of the proceeds to take a position in another down and out specialty retailer Big 5 Sporting Goods (BGFV) in early February. While that trade has worked well so far with the stock up 50%, BGFV's operating recovery (if there truly is one) has not yet occurred. BGFV currently yields 7.6%, but I did not take a position for the dividend, which I expect to be cut at some point
Honestly, I've typically never been a big fan of retail, unless it's been so ridiculously cheap and oversold in some cases we've seen the past several months. Uncharacteristically however, it is not for the long term.