What’s the “Stealth Retail King of 2014?”

by xiexgp@gmail.com | January 6, 2014 12:38 pm

Ian Wyatt's "Could this be the Single Most Powerful ‘Boomerang Stock’ of 2014?"

I’ve gotten quite a few questions about the latest pitch from Ian Wyatt for his $100K Portfolio newsletter — this is his letter that tracks the trades of a $100,000 real money portfolio of his own money, started up a couple years ago when every newsletter publisher was trying out a “real money” letter.

I first covered a teaser pitch from this newsletter in the Spring of 2012, I think, though it could have been publishing for a while before that — during that time we’ve covered his teasers for one spectacular pick (TSLA, up 300% or so since last Spring’s tease), one good one (GLW, up 35% in 20 months), and one bad one … so of course, the bad one is the one of those that I actually own as well (Sandstorm Gold, SAND, down about 25%). I don’t know what the actual performance of his portfolio is, he’s not tracked by Hulbert and the teaser picks for his other services over the years seem to average out to, well, pretty average.

But we’re not asking you to subscribe to his letter, of course, we’re just asking you if you’re interested in finding out about this “Stealth Retail King of 2014” that he’s teasing as one of his top picks for the year to come.

And of course, we’ll ask for nothing in return other than your attention, and a bit of patience as you sit through my blatherations.

Though if you feel the urge to join our group of premium members, the Irregulars, well…

… it so happens that we charge exactly the same amount as Mr. Wyatt for that membership ($49 a year[1]), and perhaps the most-loved part of our service is the little box on the left that gives you the details without reading through my blather.

But on to the topic at hand: Wyatt’s spiel now is that he’s got a talent for finding “Boomerang” stocks — and the opening attention grabber is that he buys stocks that are either undiscovered or beaten down at a 50% discount.

Here’s how the pitch opens:

“The Secret to Bagging a 399% ‘Boomerang Payday’!

“While almost no one was looking, Ian Wyatt and his readers have amassed extraordinary gains from some of the market’s biggest success stories. Shares have rocketed UP as much as: +151% on Howard Hughes Corp. (HHC)… +245% on Mastercard Inc. (MA)… +403% Tesla (TSLA)… and +399% on Netflix (NFLX).”

So yes, I can verify that he did pick TSLA last Spring, at a time when the stock was heavily shorted and under $40 and there were questions about whether they would hit their production levels for the year (the Model S was still just ramping up to full production capacity), and it did almost hit $200 a few months later and is still a huge win for him at $140+. And, of course, I looked at it at the time, didn’t assign much weighting to Elon Musk’s magic touch, and wished Tesla well but said there was no way I could pay that much for the stock. Not that I’m bitter or anything.

What’s Wyatt’s pick now? In his words:

“It’s time to pull back the veil on potentially my BIGGEST blockbuster of 2014.

“The stock I’m going to tell you about is one of those classic ‘boomerang’ investments … the opportunity to buy a world-class organization for a whopping 50% off its true market value.

“These opportunities don’t come along often, and when they do, you need to act quickly. Now is that time.

“Today marks a break with tradition. Right now, our portfolio has zero exposure to the retail sector. That’s about to change….”

OK, so it’s a pick in the retail sector — an area where I’ve personally tended to treat lightly because of the cyclicality, the pressures from Amazon and other online competitors, the low margins, and, in some sectors, the dependence on making good calls about fashion or trends. But it’s also an area that has bred some hugely successful stocks — if you get a hot retail name right, whether in fashion or food, you can do awfully well.

So which retailer is it?

“Today I introduce you to what could be the MOST UNDERVALUED STOCK in the entire ‘bricks and mortar’ retail industry. And it’s the perfect play for the ongoing U.S. retail recovery.

“I call it my ‘Stealth Retail King of 2014’. Before you dive in, please understand…

“It hasn’t all been smooth sailing for my new pick. They’ve experienced a few bad quarters – and haven’t yet witnessed the kind of share price appreciation enjoyed by many of their peers. But they’re turning it around fast… growing revenues and stockpiling cash.

“And there’s a heck of a lot more to like…

“This small ($2.7 billion market cap) women’s apparel company has very humble beginnings.

“The Stealth Retail King was founded in 1983 as a tiny boutique selling Mexican folk art and cotton sweaters on Florida’s Sanibel Island. Customers loved their brand so much that the owners decided to national.

“Fast forward to today. They operate 1,427 stores coast-to-coast promoting four superior brands geared to ladies ages 30-65. Each brand publishes its own monthly catalog and has its own website.”

OK, that’s starting to sound a little familiar — if I’m right, this is a stock that might have had humble beginnings but had some hugely spectacular “middles” and was the best-performing stock in the country for a decade or so. Let’s check the other clues just to be sure I’m right:

“The company reported sales of $751 per square foot in its most recent quarter – DOUBLE the per-square-foot sales at Talbots, Ann Taylor (NYSE: ANN) and Coldwater Creek (NASDAQ: CWTR).

“Even more impressive is its virtually spotless balance sheet. The company has $302 million in cash… is on track to have $370 million by year’s end… and has ZERO debt.”

Well, he would have had to pick this a month or two ago for it to be down 6% on the year, since it’s now pretty much flat over the last 12 months … and the store number is a bit out of date, but is an exact match for the number that was widely reported as their total over the Summer … and the quarterly numbers like the sales per square foot and the balance sheet are from the July quarter, not the most recent October one … but yes, this is Chico’s (CHS).

Chico’s FAS is a private label women’s fashion retailer, and for much of the 1990s and early 2000s it was the most successful retailing stock in the country (and one of the best performing stocks of any sector) as it grew tremendously on the back of the mass rollout of the Chico’s brand across the country. They earned a valuation commensurate with that growth back in 2005 and 2006, getting up to over $40 a share at one point on enthusiasm that their acquisition of White House Black Market would let their merchandising geniuses capture lightning in a bottle once again, and that they would be able to roll out their new Soma intimates brand as a “Victoria’s Secret for grown-ups” to great success as well … but then some merchandising and fashion mistakes hit and the stock fell pretty hard to the low teens in 2007, then further down to just below $2 a share during the depths of the financial crisis. So that’s the cautionary tale of what can happen to a growth darling when the growth part withers for even a quarter or two, but what’s the picture now?

Well, it’s more or less the same — they are now pushing gradually into international expansion, Chico’s is still the dominant brand in their stable and White House Black Market (which has a somewhat younger demographic) is still the faster-growing part, but in the years since Soma has indeed expanded to have it’s own substantial retail presence with more than 200 stores, and they’ve also added another brand, buying the Boston Proper brand and planning to turn that catalog concept into their next “bricks and mortar” chain (Boston Proper does have a few boutiques already — though they’re all in Florida and nowhere near Boston).

And the cash may not have hit $370+ million at the end of the year as Wyatt teased, since the cash balance was down to about $250 million as of the last quarter, though I imagine that’s partly because of inventory buildup at the holiday season and their ongoing share buyback program. We won’t really know for a while, their quarter ends at the end of this month and they won’t report again until late February.

They did announce that they bought back a lot of stock in the fourth quarter, and that the board has issued a new share buyback authorization which, along with a substantial increase in the dividend in November at their last quarterly report, has helped to encourage shareholders and drive the price up from the mid-teens to $19+ as I type. That’s despite the fact that that quarter was the third in a row of earnings that failed to meet analyst estimates even before taking into account a substantial writedown of the value of their Boston Proper investment because of faltering sales at the catalog (they bought Boston Proper in 2011, and had to write down the value this quarter because falling sales meant the brand was worth less than the value it originally carried on their books at acquisition — it’s not a cash cost, but it is an accounting cost that eats into reported earnings).

Why does Wyatt think it looks good here? Here’s how he put it in the teaser pitch?

“… they missed a few earnings targets and paid a huge price.

“The stock is actually DOWN 6% year to date.

“But that’s great news for us. See what Mr. Market did? He handed us a prime buying opportunity… at a deep-discount price… in one of the fastest-growing American industries!

“By virtually every measure, the Stealth King is a bargain.

“It trades at just 5.8 times EBITDA. And it trades at just one time this year’s projected revenue of $2.7 billion.”

At $19 a share, it’s trading for more like 6X EBITDA (that’s using enterprise value, which backs out the cash balance), which is pretty reasonable for a company that’s doing well at returning cash to shareholders and is expected (by analysts) to grow earnings by about 20% in the next fiscal year (the one that starts in February).

And then there’s a possible catalyst, according to Wyatt:

“There’s one more angle at play here. One that could trump all other growth triggers…

“It concerns the Retail King’s CEO.

“He’s has a 20+ year track record of success in retail. He was president and CEO of Tommy Hilfiger Corporation, president and CEO of Lands End, executive vice president at Sears, acting president of the J. Crew Catalog, and president and COO of the Home Shopping Network….

“Tommy Hilfiger and Lands End were his most recent stints. Both these companies were bought out with him at the helm.

“Given his track record, I am speculating he may be positioning to ‘flip’ his current company.

“It’s certainly an attractive target. Strong free cash flow, zero debt and huge growth opportunities both in the USA and abroad. It’s modest size is another plus.

“‘Those are things that private equity appreciates,’ Rick Snyder, a New York-based analyst at Maxim Group, said in a recent interview with Bloomberg. ‘(He) was CEO at two companies that were sold. People connect those dots.'”

So yes, that’s all true — Land’s End was (surprisingly) bought by Sears in 2002 after David Dyer had been CEO for about four years, it didn’t work out particularly well for either brand and Land’s End is probably going to be spun out again as Eddie Lampert continues to milk the carcass of Sears, but Sears did pay a nice 20% premium for Land’s End shares way back when. Tommy Hilfiger was sold to a private equity firm a couple years after Dyer took the helm, and garnered only a 5% premium to the share price at the time (though folks knew it was likely to be sold, so the price was probably already a premium before that). You can see that Bloomberg article speculating on the takeover possibilities at Chico’s here, it’s from October[2].

And Chico’s would make a pretty good private equity target if only because they carry no debt — so a leveraged buyout firm could acquire the stock, load them up with tons of debt in a big expansion spree to drive up revenue, and then sell the company off before the pressure from that debt comes to bear. Not that anyone would do anything so cynical, of course, not on Wall Street. They’re already doing a decent job of controlling their costs and returning cash to shareholders, and current activist shareholders like Blue Harbour think they’re a “growth stock trading as a value stock” — Irregulars might remember that Blue Harbour’s ardent enthusiasm for CHS was publicized during the Value Investing Congress back in September[3], perhaps Ian Wyatt was there at the same time I was.

CHS is up a bit since then, but only about 15% or so, so if you find that argument appealing it should still be so. I am personally quite cautious about the plans to roll out Boston Proper into a new bricks and mortar brand, but Chico’s stores seem to be enduring and White House Black Market and Soma are still growing pretty nicely, so there’s a lot to like about their growth and cash generation potential if you can look past the relatively weak “E” in the P/E multiple at the moment that makes the stock look expensive … but it’s still a retailer, so don’t lose sight of the fact that even though they’re returning cash to shareholders and are expected to grow they can still suffer at the whims of fashion or weather. And if they do again fail to reach analyst estimates next quarter that will mean four quarters in a row of disappointing earnings — that’s almost never a good thing, even if it could all be erased if someone decides to buy them out or it turns out that their holiday quarter was a smashing success (they were reportedly doing heavy discounting at the Chico’s stores according to some retail analysts, and it was a tough shortened holiday season for many retailers).

So there you have it — interested in Chico’s as the “stealth retail king” poised for a “boomerang” in 2014, or think the possibilities are already baked in? Let us know with a comment below.

  1. $49 a year: http://stockgumshoe.com/signup/#premium
  2. see that Bloomberg article speculating on the takeover possibilities at Chico’s here, it’s from October: http://www.bloomberg.com/news/2013-10-01/chico-s-luring-activist-seen-as-lbo-target-real-m-a.html
  3. Blue Harbour’s ardent enthusiasm for CHS was publicized during the Value Investing Congress back in September: http://stockgumshoe.com/2013/09/vic-clifton-robbins-blue-harbour/

Source URL: https://www.stockgumshoe.com/reviews/ian-wyatts-100k-portfolio/whats-the-stealth-retail-king-of-2014/

  1. 166
    vivian lewis
    Jan 6 2014, 01:31:57 pm

    As a shopoholic limited to local stores because of the wretched weath I might buy Target (TGT) because I think the hysteria about its credit card data breach has been overdone. The latest news is that the customer PIN numbers were NOT accessed by the baddies as it was encrypted after all (TGT deserves to suffer because its executives and its IT guys do not communicate very well. I shop at TJ Maxx which also has a branch for Queen Elizabeth II in Windson (England) although a few years ago it too had a bad data breach of its house credit cards. This too shall pass.

  2. Roger Bond
    Jan 6 2014, 01:36:10 pm

    My wife bought an overpriced jacket from Chico’s many years ago when the store opened up at a Chicago area mall that her friend drug her to.

    It was so butt ugly I made her take it back at the cost of about a 2 hour round trip and gas.

    Not that _I’m_ bitter or anything! 😉


  3. Roger Bond
    Jan 6 2014, 01:38:49 pm

    I’m sorry but I have to chuckle about you owning his loser and missing his winners. I could tell a few similar tales. One investment newsletter pitched Invensense (INVN) just a couple of weeks ago at $16 and I put in a limit order that didn’t fill; it’s over $20 now already.

    That’s the problem with investment newsletters and track records. If you cannot buy ALL the reco’s then somehow Murphy’s Law dictates that you only buy the bad ones!


  4. 35 |
    David Cole
    Jan 6 2014, 01:56:01 pm

    All I have to comment is the fact that my wife loves Chico’s (CHS), but that’s not a guarantee the price will go up, though she spends enough to create something, viz. a higher budget requirement. 🙂

  5. Solyom
    Jan 6 2014, 02:20:19 pm

    The stock is in a long bull trend but it does not yet fulfill my requirements as a possible buy. If it should close above 19.50 per share it probably will. If I do buy it I will set my stop, I will set my stop at 19 per share.

    Also after reading comments above I might buy the stock but not their coats.

  6. Solyom
    Jan 6 2014, 02:23:31 pm

    INVN does fulfill my requirements as a possible buy at this time. If I do trailing stop set at 19.25 while stock is at 20.75

  7. Marc
    Jan 6 2014, 02:37:20 pm

    I see the reason for the share buy back is because they are afraid of someone taking the company away form them. Missing the quarterly estimates is not good for the CEO and a vote to sell could go against them if someone targets them as described above. I’m no expert but I see way to many other good companies who have stock that is moving to load up on Chico’s.

  8. Harley
    Jan 6 2014, 03:51:32 pm

    Dyer David who is President and CEO at Chico’s FAS sold 30,000 shares at $19.46 on Jan. 3, 2014. Following this transaction, the President and CEO owned 856,772 shares meaning that the stake was reduced by 3.38% with the 30,000-share transaction.

    The shares most recently traded at $19.32, down $0.14, or 0.75% since the insider transaction. Historical insider transactions for Chico’s FAS go as follows:

    ◾4-Week # shares sold: 49,100
    ◾12-Week # shares sold: 57,100
    ◾24-Week # shares sold: 79,303

    The average volume for Chico’s FAS has been 2.1 million shares per day over the past 30 days. Chico’s FAS has a market cap of $3.1 billion and is part of the services sector and retail industry. Shares are up 2.65% year-to-date as of the close of trading on Friday.

    Chico’s FAS, Inc., together with its subsidiaries, operates as a specialty retailer of private branded, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing items in the United States. The stock currently has a dividend yield of 1.55%. The company has a P/E ratio of 32.3. Currently there are 6 analysts that rate Chico’s FAS a buy, no analysts rate it a sell, and 10 rate it a hold.

  9. David
    Jan 6 2014, 04:53:59 pm

    My mother-in-law loved Chico’s. But on Dec 14, 2013, Zacks Investment Research downgraded Chico’s FAS Inc. (CHS) to a Zacks Rank #5 (Strong Sell).

  10. Nicholas Kappes
    Jan 6 2014, 04:55:59 pm

    Chicos has captivated the market for aging Baby Boomer women, who are desperate to distinguish themselves from other boring fashion choices–they have NOT given on looking good! The store resonates with a whole generation of arty, hip and x-hippy women who want to use high -energy fashion to color their shrinking boring lives….and expanding waist-lines. I have shopped there for years for my wife, who was a fashion designer herself–for years, and my choices have always been embraced with enthusiasm! However, what makes a stock a success in the retail sector is very difficult to anticipate. But thearguments you have “circumscribed”and examined interest me, and I may consider returning to CHS ownership again! I’m getting a buzz from the parallel gyrations of Joseph A Bank and Men’s Warehouse–consolidation is definitely afoot in those specialized retail names.

  11. Jim Landry
    Jan 6 2014, 07:15:14 pm

    I’ve follwed Wyatt for a couple of years now. I still have not pulled the trigger on Chicos because of his disasterous call on j.c. penney. I’m reluctant to buy any retailers. That being said, he made me a boatload of money with the netflix and tesla calls. 2013 was my most profitable year ever and netflix and tesla account for nearly 50% of my profit.

  12. David Brown
    Jan 6 2014, 07:29:00 pm

    Not a big fan of this pick. Perhaps JCP will buy them–that would be truly interesting. The only retail play I own is KORS.

    • 11205 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      Jan 6 2014, 07:53:46 pm

      Chico’s actually has a larger market capitalization than JCP now, amazingly enough (but a much smaller enterprise value, of course, since JCP has about $5 billion in debt vs. none for CHS). Soma or Boston Proper might have made good candidates to be those little “boutiques inside a store” at JCP if Ron Johnson’s plan to convert the stores into mini-malls for emerging popular brands had actually worked.

      • Alex Binkis
        Jan 15 2014, 04:14:45 pm

        I Tue 1/14/14 was watching Fast Money and heard about FEYE @ $57. Wed (t0day) it traded $64.I missed other cyber security stocks mentioned. If youhave the info please post it.
        Thank You

  13. 19
    William Tilson
    Jan 11 2014, 01:59:35 pm

    This article – or is it a realistic rebuttal – is precisely the reason I terminated all my subscriptions with Wyatt Investment Research about the same time I became an Irregular. As regards WIR’s few successes, I had three reccomendations on Tesla before WIR ever mentioned the stock. Ian Wyatt’s overwhelming characteristic (to me) is that he sends 5X more emails trying to sell me more services – like that options deal – than he does doing the job for which I pay him. Keep up the good work, Travis. Thanks.

  14. 416 |
    Myron Martin, Junior Mining Columnist
    Myron Martin, Junior Mining Columnist
    Feb 12 2014, 09:21:41 pm

    This came as a surprise to me on two counts; 1) I was under a lot of time pressure this week and apparently missed this column. I can confirm that Chico,s is indeed the Wyatt teaser and it caught my interest because of their expansion into Canada and I can confirm that they have stores in 3 of the most prestigious malls in the greater Golden Horseshoe area surrounding Toronto, (which was not mentioned) otherwise the coverage was quite thorough as usual for a Travis column. 2) How do I know, I sent the “mini-sleuther” to check it out and already had my column for Friday 95% written with Chico’s as the mini-sleuther’s” debut profile. About 15 mins. before I was ready to send off my column for editing I hit a wrong key and a weeks work disappeared and in trying to get the file back I cam across this, so now I have learned 2 lessons, A) I better check with Travis first if I am going to write about a “teaser” instead of sending them to him as I have been doing for years, and B) I better have back up files on what I am working on each time I close the file in case something goes wrong and I lose it. So now I am faced with starting over, rewriting the rest of the column and adding an additional profile as a substitute, not that I have any lack of material. It does mean however that my usual Friday column may be a few days late in getting published to gave Gumshoe Hqtr’s time to edit my scribblings in their inimital style, but I assure you it will be worth the wait, given a hot market right now.

    Ironically I was just checking today’s price on Chico’s before sending off the draft when the “accident” happened, or was it a “thinkolator” curse for invading his turf? Ar $16.97 it was down, so maybe the insiders selling are on to something, on the other hand their financial position seems quite strong compared to competitors so maybe it is a good buy point for those interested in a strong retail stock I had never heard of. Well at least I know the “mini- sleuther works, and he has another one I can check out with Travis before proceeding.

    • 11205 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      Feb 12 2014, 09:55:49 pm

      Sorry you wasted some time walking a worn path, Myron, and I feel your pain on the lost work. I’m sure you’ll come up with something else interesting for the Irregulars.

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