Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 3
chs - chico - chico, soma, and white house/black market

255m cash, 65m debt
TTM CFFO is 212m with CapEx at 49m
Cap is 1058

Proj CapEx is 60-70m
and I like what they've done with the buyback - 290-96-27 to nothing in Q1
I hope it is a trend

Fly - you know it - negative comps
no store growth (-3% net basis planned this year)
Q1 was a bummer but inventory is tightly controlled
no much on the call - but this years numbers are next year's compares
you just need a switch - no way to call IMO

I've got to read a call or two
but it is the most interesting one I've seen in the first 7 or so...
have a smallest of dinks (really, really small)
somebody is going to survive

what I'm looking for:
lots of gross cash flow
relatively modest CapEx
no buybacks
EV/GCF 5 and under if possible
Print the post Back To Top
No. of Recommendations: 1
no buybacks

Clearly there is no growth. I am not sure how much more they can expand their store count. So besides sitting in the balance sheet what other purpose the cash servers now?

I understand you want the retail companies to hold cash, but at some point reducing the share count is not bad right?
Print the post Back To Top
No. of Recommendations: 3
no much on the call - but this years numbers are next year's compares
you just need a switch - no way to call IMO


Honestly and seriously, I'm not sure if the Q1/18 Chicos conference call makes the investment argument for Chicos stock or for Instagram (FB), QVC (QRTRA), Twitter (TWTR) or the Death Star itself - Amazon. Shoprunner should be on the list but it is privately-owned.

Less seriously, maybe Soma will be lucky and middle aged American women will start growing extra pairs of breasts.

To be fair, lots of cash flow so stock could pop if value stocks ever catch a break (the Full Einhorn).

ET
Print the post Back To Top
No. of Recommendations: 7
Well, greeting any idea with derision is bad form, and assuming today's valuation is a permanent state is very unwise IMO.

I read the same call and management is faithfully trying this and that but also controlling inventory and generating cash. If they can hold the fort on that cash flow, within 3 years they would generate more than 70% of the enterprise value, and as you state, if they can catch a pop for whatever reason the stock could double - CTRN did. CHS could pop 50% on a positive comp, and if they report bad news you could also get a 30% drop in short order - so you can trade it. I like the setup, but I'm not blind to the issues cause otherwise the price wouldn't be where it is. But retail in general has been thrown in the toilet bin no matter the sorts of number they generate.

As far as Einhorn is concerned, my sympathies lie in his direction as far as some of these valuations but nobody cares anymore and I wouldn't have committed a death march by shorting them...but we've gotten to the point in this market where the justification for a good pick has become it went up, and we all know where that stock picking technique leads (maybe this time is different).

==

it is just my personal belief formed over 30 years that buybacks and retailers (no-moat retailers) have no tangible connection as far as value creation is concerned, and therefore the retention of cash is the surest way to ensuring absolute survival which is the surest way to enjoy a period of popularity which inevitably drives the stock higher - much higher.

--
Print the post Back To Top
No. of Recommendations: 4
Clearly there is no growth. I am not sure how much more they can expand their store count.

p.s.

you could have said similar things about cato and it is up 150% from the low - I'm just making the assumption that valuations don't exist in a vacuum. Course, you've got the problem of pegging the low, but if you plan to use incrementally higher bets over time at different valuations and you aren't insisting on calling the turn, then cash on the BS gives you the ability to keep the bet in place far longer. I'm betting a payoff can be worth it, and i hope to spread my wagers among several similar setups.
Print the post Back To Top
No. of Recommendations: 4
Well, greeting any idea with derision is bad form, and assuming today's valuation is a permanent state is very unwise IMO.

I was quite serious about the CHS call being an investment commercial for Amazon and QVC and Facebook and am purchasing a dink of Qurate Retail after reading the CHS call and investigating QRTEA a bit further. Similar top-line issues (when you control for accounting changes) but I think the underlying fundamentals of their businesses are more stable. Not as statistically cheap as CHS admittedly. The connection with the Liberty people is a bonus too.

if they can catch a pop for whatever reason the stock could double - CTRN did. CHS could pop 50% on a positive comp, and if they report bad news you could also get a 30% drop in short order - so you can trade it. I like the setup

You're defending CHS eloquently and successfully but you also note that you have the smallest of dinks. From an investment point of view we're actually both treating the idea derisively if you keep it at a tiny dink :)

I don't own CHS and in effect Chicos stock has the same ramifications to both our portfolios at the moment. That doesn't seem right.

As far as Einhorn is concerned, my sympathies lie in his direction as far as some of these valuations but nobody cares anymore and I wouldn't have committed a death march by shorting them..

The WSJ hit piece knocks him for naps and gambling but I think you nail the real reason his performance is so lagging. I just wonder if history will rhyme and like Sanborn at the Oakmark Fund will Einhorn be forced to pack it up just prior to a rejuvenation in value stocks? It has that feeling, doesn't it?

it is just my personal belief formed over 30 years that buybacks and retailers (no-moat retailers) have no tangible connection as far as value creation is concerned, and therefore the retention of cash is the surest way to ensuring absolute survival which is the surest way to enjoy a period of popularity which inevitably drives the stock higher - much higher.

I basically agree with you and wish retailers would publicly identify an amount of cash they require for the tough time scenario and keep it in the bank (if they have it). Above that level (which can change depending on store count and retail economics), I think they should do what they please to constructively improve and grow the business.

However I am sure 30 years of investing has also taught you that the likelihood of that happening is quite small and retailers like so other American sectors in the past is adapting painfully to new realities.
Print the post Back To Top
No. of Recommendations: 1
You're defending CHS eloquently and successfully but you also note that you have the smallest of dinks.

I just planted a flag.

Too early for you to park a cannon in front of my flag

:-)

re: the various mentions in the call
sell where-ever and when-ever you can
not sure there is an issue there but everybody is tweaking this and that
they've got to tell a story

Above that level (which can change depending on store count and retail economics), I think they should do what they please to constructively improve and grow the business. However I am sure 30 years of investing has also taught you that the likelihood of that happening is quite small and retailers like so other American sectors in the past is adapting painfully to new realities.

I only need one to work
We'll see - it is just another tool in the arsenal
I guess I got uptight when i realize that a lot of these retailers - before
were trading at multiples of cash

Again, pegging the low is impossible
and it isn't like you are going to have creative insight on a turn
but the math is compelling if you can hit one or two
With the reassurance of a pretty BS and CapEx that isn't ridiculous
time will tell
Print the post Back To Top
No. of Recommendations: 3
but the math is compelling if you can hit one or two
With the reassurance of a pretty BS and CapEx that isn't ridiculous
time will tell


One always has to take analysts with a grain of salt but I note that Merrill Lynch is projecting lower EBITDA for FY19 though FY21. Of course, stronger or weaker comps or margins can make that estimate seem silly.

Still, it's a reasonable explanation for the weak stock price when FCF is suggested to shrink from 183 in 2017 to 79 in 2021. To the extent that such weakness is priced into the stock, CHS could surely pop if management can defend FCF from falling so rapidly.

Those FCF ratios and gross cash flows won't see so impressive if Merrill Lynch is directionally correct.

Tough to hold a melting ice cube in your hand unless you think the weather is changing.

ET
Print the post Back To Top
No. of Recommendations: 2
One always has to take analysts with a grain of salt but I note that Merrill Lynch is projecting lower EBITDA for FY19 though FY21. Of course, stronger or weaker comps or margins can make that estimate seem silly. Still, it's a reasonable explanation for the weak stock price when FCF is suggested to shrink from 183 in 2017 to 79 in 2021. To the extent that such weakness is priced into the stock, CHS could surely pop if management can defend FCF from falling so rapidly.

Those FCF ratios and gross cash flows won't see so impressive if Merrill Lynch is directionally correct. Tough to hold a melting ice cube in your hand unless you think the weather is changing.


yep, all true, but I am not compelled to a make a single bet, and I'm not compelled to make a bet proportionally the same and as far as ML estimates on this are concerned: Ecclesiastes 1 verses 1 and 2

(plus, if you follow the reasoning, I'm not hoping for immediate improvement)

--

at the low, cato traded for an EV of 20m with 50m in GCF and steeply falling SSS
SSS were up recently, stock up 150%
that's what I'm seeing; thinking about
nothing more than that
multiply this times - don't know - 50 to 75 opportunties
Print the post Back To Top
No. of Recommendations: 1
It has that feeling, doesn't it?

at this point, I'm sure anymore
i know enough by now that I don't know much
so whether there will be a great reckoning I don't know
-
course, I'm one of those folks in the great minority who thinks that Amazon is partly a fraud, that they are insanely bad for business, and that a whole host of companies think that spending and spending is the way to go and you can effectively ignore that when valuing them, but I try not to share this view too often and I wouldn't be foolish enough to back up this view with a wee bit of shorting here and there (having an opinion is one thing, but losing money on it? No....)

(as I listen to my free amazon music and await my latest amazon book purchase and wondering if i need another laser cartridge from amazon and wondering if Prime Day will actually have anything on sale that I want)
Print the post Back To Top
No. of Recommendations: 1
p.s.

here is the pitch for retailers to do this:

--
make sure you use some options, the better to get grants at low prices
keep the cash to ensure survival and salary
activist pressure can only make the stock go up (sometimes - see option grant sentence)
you only need a period of sustained popularity to make fantastic returns

AND

you suck at buying your own shares, buying when you feel good and never buying when you feel bad, and this is contrary to logical capital allocation
besides, if you recall all that time you spend on merchandise, people, site selection, remodels, and IT, then remember that buying shares ought to demand the exact same type of analysis, expertise, and talent; if you don't have it, then don't do it, ever
--
SEE 10,000 examples of stupid buybacks in this space (no-moat retailers) - spend an hour with the idiots at BBBY
Print the post Back To Top
No. of Recommendations: 8
course, I'm one of those folks in the great minority who thinks that Amazon is partly a fraud, that they are insanely bad for business, and that a whole host of companies think that spending and spending is the way to go and you can effectively ignore that when valuing them

https://www.sequoiafund.com/Communications

Sequoia Fund (Ruane, Cunniff & Goldfarb) recently published their annual meeting transcript. Lots of discussion of Amazon, Google, Facebook, and what one may label the New Value Paradigm. Broadly speaking, the fundamental value shift towards "compounders" away from traditional low P/E value plays. I bolded some interesting few lines.

Now, I’m not sure this idea that there is earnings power within there is such a controversial one anymore. For a long time, the popular press and even the popular business press referred to Amazon as “the company that never made any money.” I think most informed observers today do buy into the idea that there is earnings power within the retail side of the business. But how much earnings power? And how sure are you of your estimates? There are no easy answers here.

We tried to analyze it from a number of angles. We looked at the growth investments the company is making in the retail business. There are a whole set of identifiable growth investments, including discreet ones as well as new verticals and new geographies. The list goes on and on.

One big point I’d make about Amazon’s retail investments is that most of them go through the P&L. This distinguishes Amazon from brick and mortar retailers. Interestingly, Walmart didn’t produce any free cash flow until the late 1990s. All the while, the company was building these very profitable boxes all over the country. Walmart was investing through the balance sheet, not the income statement. With Amazon, it’s a slightly different story. Most of its retail investments terms go through the P&L. In our minds, though, there isn’t any great economic distinction.


"There isn't any great economic distinction." Really fascinating statement and if true, one more nail in the coffin for GAAP and traditional value analysis. That being said, Amazon is an extreme example. AMZN is more or less 3% of the SP500 so not that meaningful anyway by itself but the idea and trend is crucial.

ET
Print the post Back To Top
No. of Recommendations: 5
few small comments:

*thanks for putting that up. I always enjoy reading S meeting transcripts and am appreciative that you posted the link

*just to acknowledge, I'm a one man band reading surface research with few insights and no edge and they are an investment shop with lots of people and tons of analysts and they say things like 'We tried to analyze it from a number of angles'. What I do is spend a little time enough to know pretty conclusively that I'm not going to have any valued added insight (what I call a numbers buy). Thus, anything I say is meaningless, just meaningless. I was trying to puncture what I mentioned about Amazon with that little bit at the end. I'm usually tempted not to say anything, because I have nothing to add. With Amazon, I've kinda gotten used to calling it what I do, and I don't feel an inclination to change that but that's mainly cause I don't know nothing and this is a free board.

*that said, I don't understand the point they are making re: WMT at all. There is nothing useful or noteworthy in that, right? WEB used to say that "The business is wonderful if it gives you more and more money every year without putting up anything, or by putting up very little....A business is also wonderful if it takes money, but where the rate at which you reinvest the money is very satisfactory."

WMT was reinvesting the money at more than satisfactory rates. Restaurants do that. Nobody is insisting on FCF at the start, though it is surely useful to have and seems to be the number 1 trait in ALL their other ideas. Except Amazon - You look at Amazon's retained earnings (quibble with this all you want - just a shorthand I'm lifting from Barron's) and you get all of 8.6b. Google's is 113b. How do you know they reinvest their capital at high rates? I don't get it.

But I do know a joke when I see it - like the idea that Bezos is so smart he will wipe out grocery stores with a brick and mortar purchase of.....Whole Foods? Who are we kidding. I just figure if they are stupid enough to do that, they can be stupid enough to do a lot of stupid things. Course, it all gets masks by the AWS and their absolute dominance in E-tail which more and more seems like a truly suck-y business for everyone else. But Amazon gets a pass, and should get a pass.

re: Sequoia
They are just writing words it sounds like - none of that makes sense, and it is a TERRIBLE way to invest IMO unless you simply want to toss notions of reinvestment rates out of the window. I don't think this is a nail at all, but who is to say really - just make money. If this is how they want to justify it, then fine....but there is a series undercurrent of BS in that transcript...
Print the post Back To Top
No. of Recommendations: 1
series - serious
I can't even spill...

(p.s. I would take S explanations over mine 100%)
Print the post Back To Top
No. of Recommendations: 0
p.s.

sorry, bad mood tonight
that bit about 'our stocks are going up!' seems to be the clarion call of the technique, but I also believe that immediate success in a pick is a good thing, so who am I to quibble?

It was kinda funny how they said that talking to management wasn't a big deal anymore...

and here:

Reading company filings and crunching numbers is just the start of our research process. We take pride and pleasure in investigating a company from all angles, doing the kind of on-the-ground, primary research that an enterprising journalist might do. This work can be painstaking, spanning months and sometimes years, but we have found that it often yields surprising and valuable insights, some of which can be put on a spreadsheet but many of which cannot be. This sort of intensive primary research is how we spend most of our time.

there is no evidence this beats an index
in fact, if it takes them this long to make up their minds, I would question the entire structure

but then again, i'm in a bad mood
Print the post Back To Top
No. of Recommendations: 0
one other tell:

https://www.sequoiafund.com/About

make your own conclusions- obviously one heck of a purge


(SteinMetz = cool but I'm surprised he hasn't been pushed out)
Print the post Back To Top
No. of Recommendations: 0
Sequoia meets Valeant...
Print the post Back To Top
No. of Recommendations: 0
rear view mirror though
GoldFab gone
https://www.kiplinger.com/article/investing/T041-C009-S002-s...

I'm not sure why you would need Sequoia over, say, Fidelity Contrafund, despite that one's size

just whistling in the wind
Print the post Back To Top
No. of Recommendations: 8
There isn't any great economic distinction.

This idea isn't new. In their 2000 edition on valuation by Copeland et al. there is a chapter
devoted to this, using Amazon as the example. Here is some of the discussion from the introduction
to the chapter:

<<Another way to illustrate this phenomenon is by comparing a "bricks-and-mortar" retailer with
an e-commerce retailer. In the bricks and mortar case, much of the customer acquisition cost
consists of securing the store location, construction, and furniture and fixtures. These items
are largely capitalized and expensed over their useful life. In the case of the virtual retailer,
almost all customer acquisition costs are expensed. The physical retailer will break even many
years earlier than the virtual retailer, even if they have identical cash flows! Provided the
virtual retailer will earn a positive net present value on its customer acquisition investments,
increasing losses because of accelerating customer acquisition will raise the value of the company.

One thing is certain, though. These conditions of supernormal growth and investment through the
income statement render short-hand valuation approaches, including price-to-earnings and revenue
multiples, meaningless.>>

The rest of the chapter is devoted to a discussion of valuing Amazon. It's interesting to compare
their valuation back in 2000 to what actually has transpired with Amazon.

While Amazon gets most of the attention, what's fascinating to me along these lines is the rise of
the software as a service firms, starting with salesforce.com (CRM) in 2004 and really picking up
steam in 2011 onwards with the plethora of new firms in this space. An index of these firms from
2011 forward shows an annualized return of roughly 25%, yet none of them are GAAP "profitable".
If the market is a weighing machine, it clearly needs calibrating, else we have to find ways of
understanding how these firms are creating value.

Ears <no position>
Print the post Back To Top
No. of Recommendations: 0
it is a small point, but if spending creates a profitable moat that endures over time, then spending makes sense. This is my problem with, say, restaurants - when they use their cash to open new buildings you end up with new buildings, which is fine as long as the restaurant is successful. But if the concept gets tired....similarly, if you are a SaaS company building sticky recurring revenue, then I can understand spending and spending and spending.

That said, it is all very hard for the likes of me...esp if you have no technology edge or don't understand if the definition of 'recurring' means what you think it does - it seems like a lot of it is taken on faith. Throw in extensive use of RSUs and options and I feel inadequate with any evaluation.

Course that is not new. End of this for me - back to work...
Print the post Back To Top
No. of Recommendations: 2
when they use their cash to open new buildings you end up with new buildings, which is fine as long as the restaurant is successful. But if the concept gets tired..

Assuming a restaurant can recover their investments in 1 to 2 years (excluding real estate), even if the concept gets tired, the unit level profitability should be there (I assume it will go down but not eliminated right)?
Print the post Back To Top
No. of Recommendations: 0
Assuming a restaurant can recover their investments in 1 to 2 years (excluding real estate), even if the concept gets tired, the unit level profitability should be there (I assume it will go down but not eliminated right)?

I'm not sophisticated in this way (four wall profitability; cash on cash return; etc.) but 1 to 2 years would be pre-incident CMG level, right? Nobody else comes close? Just casually flipping thru a recent presentation:

http://investor.chuys.com/static-files/389c7c00-30ea-40cc-a2...
slide 16

my only point with the above is that restaurants don't typically build moats - they require remodels at least, with other high CapEx things, and marketing doesn't get you a customer for life: there is no single decision, there is no I've got this moment with any permanence.

Contrast that with the software program I use in my biz requires, my guess, minimal upgrades and due to the high switching costs moving elsewhere is not an option. So if I don't like it, that's tough. With a restaurant, customers can move on. I would understand why the software company would want to spend and spend and spend to make me a customer cause the decision to patronize the product is virtually a one-time deal, almost set for life, with unlimited pricing power if not used in a draconian fashion.

So this would alter your view of reported earnings and so forth. But it is inherently a more squishy evaluation...
Print the post Back To Top
No. of Recommendations: 3
They are just writing words it sounds like - none of that makes sense,

day later, I officially retract this
I'm glad you posted that - gives a lot of stuff to think about
Print the post Back To Top
No. of Recommendations: 0
Contrast that with the software program I use in my biz requires, my guess, minimal upgrades and due to the high switching costs moving elsewhere is not an option. So if I don't like it, that's tough. With a restaurant, customers can move on. I would understand why the software company would want to spend and spend and spend to make me a customer cause the decision to patronize the product is virtually a one-time deal, almost set for life, with unlimited pricing power if not used in a draconian fashion.

i guess it is a super obvious point (probably something to beat into the head) with Amazon on how they keep customers:

*give them free movies and TV shows, even if bottom of the barrel vs. Netflix
*link a credit card which gives higher than normal points
*appeal to the altruistic side by using a 'smile' version intended to benefit charities
*include user reviews - even bad reviews (though switching to verified purchase reviews only made sense once there were enough)
*etc. etc. etc.

They do so many things to keep you as a customer. I mean, who else does this? Hardly anybody. Costco kinda comes close, but anybody else? Not anybody I know, in no other realm of customer service or retail or whatever.

But evaluating this these with Amazon is one thing, but how do you apply this sort of knowledge to other companies? Do you just rely on the customer acquisition numbers ala what they do obsessively on Saul's boards?
Print the post Back To Top
No. of Recommendations: 1
Do you just rely on the customer acquisition numbers

I think you cannot compare Amazon with most, if not all the firms. Leaving aside, I will look at Costco as a much more realistic model.

Costco does reasonable things, offers cheap products, good value and based on my personal experience very sticky. I hardly even go to Safeway (grocery supermarket) any more.

That's a good model for many software companies, offer reasonable products that meets customers needs, with a decent price, and support, generally customers stick. Switching costs matter. However, look at PeopleSoft, when Oracle purchased the assumption is they are buying the customers along with the product. Oracle confused the message saying they will not be further developing the product, then fusion etc.

Eventually, now they are bleeding their long, sticky enterprise customers to workday. The value destruction here is masked by performance elsewhere.

Customer acquisition is great, but you need a pathway to profitability, sustained profitability. I think customer retention is equally important to see early signs. It takes awhile for the customer retention issues to fully play out, but any weakness here, shoot first and ask questions later.

For many of Saul's universe, it is not clear to me, once they reach their critical mass, will their SGA come down, is there a magic level of revenue run rate, where the leverage will kick in?

The skeptic in me says, in a world where GDP is growing < 3%, 10 yr UST is < 3%, 40%, 50% growth gets valued far more than they are worth.

I just posted about Tintri on Saul's board. There are lot of reasons for the failure, execution, growth stalled (flat for the last year), running out of cash, etc.

I think the survivors are the ones who have staying power, cash on the balance sheet, not necessarily the best technology, but one that can execute.

What they are doing is interesting, but that's not for me.
Print the post Back To Top
No. of Recommendations: 2
Most Amazon series are on par with NFLX's series imho, some better some worse, both put out some bad crap.

You forgot the kindle. I have several hundred books on my kindle now, something I would have sworn would never, ever happen. Go to amazon.com, download a book, hey wait I need kitchen trash bags...and toothpaste....and the new Eagles Super Bowl blu-ray DVD....


Never bet against the American consumer.
Print the post Back To Top
No. of Recommendations: 1
chalk up for things you (me) didn't know

chs - per a Barrons article - sources 42% from china
possible tariff exposure

https://www.barrons.com/articles/trade-war-this-retailer-cou...
sub required
Print the post Back To Top