Daily Trouble |
|
Related Items |
|
Tuesday, September 1, 1998
Brylane Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %>
Phone: 212-613-9500
Price (8/31/98): $25 15/16
HOW DID IT FIND TROUBLE?
Leading catalog retailer Brylane is holding a sale -- on its stock. The company known for carrying discount and extra-large apparel sizes saw its shares lose $11 7/16 on August 19. That's when Chair/CEO Paul Canzone said the second half will be weaker than expected.
Actual second quarter results looked fine, if hardly fashionable. Revenues rose 9.4% to $300.5 million, nudging overall first half sales up 7.4%. Skirting some minor charges, pro forma operating income leaped ahead 14.1% on the strength of slightly higher gross margins. Pro forma net income of $12.4 million was 9.7% ahead of the year-ago number. With fewer shares outstanding, pro forma EPS turned up 19.6% to $0.67 a share from $0.56 last year.
Those numbers were in line with estimates. But taking a "conservative posture," Canzone said that "sales growth for the second half of the year will remain consistent with the first half levels." That news led analysts to cut earnings estimates and downgrade the stock.
BUSINESS DESCRIPTION
Brylane is the nation's top catalog retailer of value-priced clothes. Its Lane Bryant, Roaman's, and Jessica London catalogs make Brylane a leader in extra-large women's apparel, while its King Size catalog targets big men. Its Lerner catalog addresses the women's regular size apparel market while the Chadwick's of Boston catalog is the nation's largest discount women's catalog retailer. The company also markets apparel to Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> customers with catalogs using that retailer's brand name.
The company has a customer list of 23.4 million names, with 10.9 million customers who've placed orders in the last year. About 40% of the 4.5 million active customers of Lane Bryant, Roaman's, and Lerner have placed three or more orders in the last year. Such loyalty is reflected in the fact that while 92.5% of FY97 sales were charged to credit cards, 51% of total sales excluding the Sears catalogs were charged to Brylane's own private label credit cards.
Though some of its major operations were associated with The Limited <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTD)") else Response.Write("(NYSE: LTD)") end if %>, French-based Pinault-Printemps-Redoute (PPR) acquired a 44% stake in the company this past April, paying $51 a share to acquire stock owned by The Limited and other shareholders, including management. The Limited is now allowed to compete with Brylane in the retail catalog business for special size women's apparel, but Brylane retains royalty-free use of the Lane Bryant and Lerner trademarks until October 2007.
In addition to PPR's now 46% stake, Fidelity funds recently held 9% of the stock. Current management beneficially owns less than 1% of the company.
FINANCIAL FACTS
Income Statement
12-month sales: $1,359.4 million
12-month income: $53.4 million
12-month EPS: $2.91
Profit Margin: 3.9%
Market Cap: $484 million
Enterprise Value: $789.4 million
Balance Sheet*
Cash: $9.1 million
Current Assets: $308.6 million
Current Liabilities: $205.4 million
Long-Term Debt: $314.5 million
(*As of May 2, 1998)
Ratios
Price-to-earnings: 8.9
Price-to-sales: 0.36
Enterprise value-to-sales: 0.58
HOW COULD YOU HAVE SEEN IT COMING?
With the economy still booming and consumer confidence high, women's apparel retailers have generally been doing well of late. Also, PPR's partial acquisition of the firm suggested a potential target buyout price (though PPR is restricted, for now, from significantly raising its stake). Both developments should have left an investor thinking that the stock wasn't likely to see the $30s much less the $20s anytime soon.
Still, fashion is fickle, and retailers who are slow to respond to their customers' often subtly changing tastes can end up as fashion victims. Since weak Lerner catalog sales are a major cause of the downbeat forecast, it's possible that the active Lerner catalog customer might have seen this coming.
WHERE TO FROM HERE?
With the stock now trading below its February '97 IPO price of $24 and at less than half the $51 a share PPR paid just five months ago, Brylane looks like it could stand to gain back some of the dollars dropped in August.
Indeed, a new six-year, $500 million revolving credit facility will allow Brylane to call $125 million in 10% senior notes and reduce annual interest expenses (which ran at $27.7 million last year) by $4 million. That amounts to at least $0.13 per share annually. Though the company is still weighed down by a debt-to-equity ratio around 1.6, it has ample cash flow to cover the interest. The company also just announced a $40 million stock buy back plan.
Analysts reportedly are looking for the Lerner catalog to account for just 13% of sales in the second half of '98, down from 18% last year, due to a slow shift to new styles. Still, some changes in the fall catalog should be a prelude to even more improved Lerner offerings for spring. That should spark sales.
Brylane also plans to launch a new home products catalog and to do a little cross-marketing by taking catalogs to PPR's European base while introducing the La Redoute catalog in the U.S. The only surprising omission in this mix? Brylane seems to have no e-commerce strategy. That's odd for a company that lives by the catalog.
Nonetheless, even after some analyst downgrades and revised estimates, Wall Street projects earnings of about $3.29 a share this year and $3.84 for the fiscal year ending in January 2000. So, the stock trades at just 8 times estimates two quarters out even as the short-term targets call for 15% growth.
Investors looking for a beaten-down retailer, especially those investors who are Brylane customers, might want to give this one a closer look.
-- Louis Corrigan
([email protected])
Check out the Daily Trouble Message Board!
|
|||||||||
<% if request.querystring("source") = "yhoolnk" then referer = Request.ServerVariables("HTTP_REFERER") if referer = "" then referer = "http://finance.yahoo.com/" response.write " " end if %> <% function YahooWelcome if gsCookieUsername = "" and request.querystring("source") = "yhoolnk" then %> |
Welcome, Fool! |
|
Be a Fool and get free, unlimited access to our site.
What we offer: |
© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us |