It's hammer time once again in small specialty retail -- as in many names in the sector are getting hammered.
This is not the first time we've seen retailers suffer in recent years, nor will it be the last. Let's look at several hard-hit names:
Fossil Group (FOSL) , a member of my 2022 Triple Net Active Portfolio, and seemingly on its fourth or fifth life, has been decimated. FOSL is down 56% year-to-date. Much of that damage has been done in the past four trading days, during which shares have fallen 40%. That dismal performance comes on the heels of first quarter earnings, where the company lost 61 cents/share on revenue of $325 million. The company currently garners no analyst coverage.
FOSL ended the quarter with $127 million, or $2.43 share in cash, and $235 million in debt. With a current market cap of just $102 million, that puts the enterprise value (EV) at just $210 million. FOSL now trades at just 1.27-times net current asset value, and .28-times tangible book value. The markets are clearly pricing the company for death-not the first time-and we'll see if this "cigar butt" has a few puffs left in it. Shares closed Tuesday at $1.94, and despite legitimate concerns, you've got to wonder whether there's been an overreaction to the downside.
Big Five Sporting Goods (BGFV) is down 17% year-to-date. BGFV topped out at about $43 in late 2021, but its been downhill ever since. However, BGFV is profitable, and trades at 13-times 2024 estimates (granted, just one analyst covers the name). But markets are doubtful of the company's prospects based on two measures. First, the dividend yield at 13.4% is screaming "dividend cut." BGFV ended its latest quarter with $27 million in cash, or about one-year worth of dividends. Debt is light at $10 million. Second, the current short interest ratio is just over 23%, so there are significant bets that the stock will fall further. Of course, the flip side is the potential for a "short squeeze."
Cato Corp (CATO) is down 16%, trading at levels last seen during the pandemic. The fashion retailer also boasts a big dividend yield -- currently about 8.5% -- however, the company also has the cash to continue paying the 17-cent quarterly dividend should it choose to do so. CATO ended the year with $129 million or $6.30/share in cash and short-term investments and no debt; shares closed at $8.03 on Tuesday. As a sweetener, CATO also owns 15 acres in Charlotte, North Carolina and 185 acres in York County, South Carolina.
I am just scratching the surface here, and it will be interesting to see how this shakes out. We've seen overreactions in the sector in prior years, but small specialty retail is not for the faint of heart.