As challenging as markets have been recently -- and by recently, I mean the past few years -- from a value-investing perspective, the past couple weeks have been extremely interesting in terms of earnings releases and other events.
Earlier this week, Kulicke & Soffa Industries Inc. (KLIC) not only reported a very solid quarter, but also increased its guidance. The former double-net -- a company trading between 1 and 2 times net current asset value -- beat consensus estimates on both revenue ($215.9 million vs. $208.7 million consensus) and earnings per share (51 cents vs. 35-cent consensus). Management also upped first-quarter revenue guidance from $161 million to a range of $185 million to $195 million. Shares initially rose 20%, closing Tuesday at a 17-year high, before giving some of that gain back the following day.
Kulicke & Soffa's margins showed great improvement year over year, with gross margins up 280 basis points and operating margins up 1,770 basis points. The company ended the quarter with cash and short-term investment of $608 million, or about $8.44 per share, and just $16 million in debt.
Kulicke & Soffa now trades at 2.75 times net current asset value, which takes it out of double-net territory, but that is due to the rising stock price. Indeed, its shares are up about 68% year to date. I had held KLIC out as a possible acquisition candidate in the past, and it is still interesting at 16 times next year's consensus estimates, especially considering its cash hoard.
With small apparel retailers on life support, yesterday's third-quarter report by Cato Corp. (CATO) was, if nothing else, interesting. The bottom has all but fallen out of the stock as same-store sales have been dreadful, but the company managed to beat the consensus on earnings (11 cents a share vs. break-even) and revenue ($190.3 million vs. $188 million). Same-store sales were down 9%, so this was no great victory. Rather, it seems a minor reprieve for a company that at least has one thing going for it as it battles merchandise missteps and market forces -- that being liquidity. Nonetheless, Cato shares reacted very favorably, up 19% on the day. Cato ended the quarter with about $8.50 per share in cash and short-term investments. If nothing else, that pile of cash may give Cato a runway in its attempts right the ship, though it certainly won't be easy.
Small, distressed but liquid retailers may be the antithesis of what most would consider value, but if the markets pronounce death prematurely and there is some life left in a company, there may be some money to be made -- maybe not over the long term, but in the short term. Cato currently yields a healthy 8.4% and declared its normal dividend of 33 cents, so the payout lives on at least for another quarter.
Then there is sporting goods retailer Hibbett Sports Inc. (HIBB) . Its shares were down 60% year to date through Thursday, but it announced its own top- and bottom-line beats this morning. Earnings per share of 37 cents beat the consensus by 15 cents, while revenue of $234 million was better by more than $17 million.
Same-store sales were down by 1.3%, which is not bad in the scheme of things. Perhaps most importantly, management increased guidance for earnings per share in 2018 from a range of $1.25 to $1.35 to a range of $1.42 to $1.50.
During the quarter, management showed its confidence (some might apply a less-favorable term) by repurchasing 1.2 million shares at an average cost of $13.25. By my count, Hibbett has reduced its share count by nearly 24% in less than three years. In addition, it still has more than $213 million in repurchase authorizations left. Hibbett ended the quarter with $58 million in cash. This should be a big day for HIBB, which traded as low as $9.40 intraday on Aug. 18.
Value can be an ugly business, but even the most soiled and ugly $1 bill is worthy of purchase if you can get it for 50 cents. You may not want to hold on to it very long, but that depends on the situation.
