An August visit to my wife's folks in western Pennsylvania is not complete without an excursion to the Crawford County Fair, notable as the largest agricultural fair east of the Mississippi (the pies are great, too). This year, however, controversy is in high gear as the Fair's queen (actress Sharon Stone served this role in 1975) lost her title due to rule violations -- she was photographed holding hands with her boyfriend while wearing her sash and crown at another fair, allegedly unchaperoned. I'm not sure which of those was the rule violation, but it was enough to strip her of the crown. Then the runner-up declined to fill the role, so the 2019 Crawford County Fair is queen-less. You can't make this stuff up.
A visit here I also not complete without hitting the region's retail outlets, a massive array of stores that in the past has been the genesis of some winning investment ideas. I use the time to do some rudimentary channel checks in order to check out merchandise and see which stores are crowded and which are not. Of course, this is not meant to drive a final decision on a name; activity at one location may not be indicative of activity throughout an entire chain, but it can be an indicator nonetheless.
Surprisingly, there were no lines outside the Coach store, which have been typical in the past. Coach's parent company, Tapestry Inc. (TPR) , is down more than 40% year to date and down 22% since last Thursday, after the company reported in line earnings per share while narrowly missing on revenue. Tapestry cut guidance for the first quarter, which is likely why investors abandoned the stock. Shares now trade at a 10-year low and at 7x next year's consensus estimates while yielding 6.76%. If this were 2017, I'd likely pile into the name, but it isn't, and I won't, at this point, anyway.
It was more of the same at Chico's (CHS) , which was nearly empty when I strolled by the store. We did not hit the White House Black Market store (a Chico's brand); my better half simply was not inclined to make a stop there. Last month, CHS named a new CEO as the company struggles to find its identity in a very difficult retail segment. Chico's currently trades at 44x next year's consensus estimates and yields 11.4%. The company ended last quarter with $168 million, or just under $1.50 per share, in cash and short-term investments, but markets are telling us that dividend should be or will be cut.
One of the most eye-opening things was the line outside the Vera Bradley store; the other surprise there was that my better half not only wanted to go in, she also bought something. Years ago, she loved/bought Vera Bradley products, but in more recent years the brand had fallen out of favor. Vera Bradley Inc. (VRA) is actually up year to date (18%); the next driver may be the success or failure of the company's recent purchase of a 75% stake in bracelet name Pura Vida. VRA currently trades at about 13x next year's consensus estimates.
The Fossil store was hopping, but perhaps more importantly, my better half found several items she liked while declining my offers to buy. I owned Fossil Group Inc. (FOSL) between early 2018 and mid-2018, with the idea generated from a visit to the same store in late 2017. It was not a long hold as shares rose quickly, topping out in June 2018 at $32. FOSL has done about a round trip since then and closed Friday at $9.42. Fossil shares trade at about 16x next year's consensus estimates. I'm tempted, but not pulling the trigger.
Both The Gap and Old Navy were packed (especially the latter), but the most interesting tidbit from this excursion came courtesy of a Gap employee, who has been at this particular store since the outlets opened some 20 years ago. As crowded as the store was, likely due to back-to-school shopping, she remarked that 10 years ago the store would have been twice as crowded, which she attributed to online shopping. She went on to add that she did not know how people were able to buy clothing online, an astute observation. Gap Inc. (GPS) currently trades at 7.5x next year's consensus estimates and yields just over 6%.
Make no mistake -- small specialty retail is a mess right now. Tariffs remain a huge overhang, and there also is the ongoing impact of the shift to online buying. Many specialty retailers generally remain in the dumpster, but this feels different than the "Retail Armageddon" of two years ago. You simply can't buy on the big dips the way you could then, assuming that inefficient markets have overly punished a particular name and expect a fairly swift rebound. I've been reluctant for the most part to play that game in this environment, although I tried with At Home Group Inc. (HOME) back in June; that investment has been a disaster, with the name falling another 40% since I bought it.
Now it's off to the queen-less fair. I hope there are still some pies left.
