Equity Research Direct Sales Retailing | Canadian Small Cap June 18, 2018
Chris Thompson | Head of Research | Ubika Research Chris@UbikaResearch.com | 1 (416) 574-0469
Alp Erdogan | Analyst | Ubika Research Alp@UbikaResearch.com | 1 (647) 479-5690
Peekaboo Beans Inc.’s (TSXV:BEAN,CSE:BEAN) gross margins are guided to trend towards the 25% level, an improvement of 6% over current levels
Market Data (TSXV:BEAN,CSE:BEAN)
Price (June 11, 2018 close): $0.33
52-Week Range: $0.31 – $0.99
Market Cap (M): $5.6M
Shares Outstanding: 13.6M
Free Float: 90%
Average Daily Volume (3 Months): 19K
Total Debt: $0.7M
Total Assets: $2.8M
Revenue (FY2016) $3.5M
Revenue (FY2017) $3.4M
Headquarters Richmond, B.C., Canada
Traci Costa 4.5%
Nikki Mayer 1.7%
Darrell Kopke 1.6%
Tom Kusumoto 1.0%
Glenn Johnson 0.8%
Traci Costa Director
Nikki Mayer CFO & Director
Cindy Tokoly Director of Sales and Field Development
Darrell Kopke Director
All figures in CAD unless otherwise stated. Source: Thomson Reuters
Figure 1: Marketing Banner
Peekaboo Beans Inc. (TSXV:BEAN,CSE:BEAN)
Inviting Children and Investors Alike to “Come and Play”
Company Description: Peekaboo Beans Inc. is a direct-sales retailer of high-quality, ethically manufactured children’s apparel operating in Canada and the U.S. The Company’s products are sold exclusively through its direct-sales network of independent sales representatives or “Stylists”. The clothing is manufactured in an environmentally and socially conscious manner and promotes children to play through thoughtful designs and custom developed fabrics. Through the direct-sales model, Peekaboo Beans is on a mission to empower women to be entrepreneurs, build a business and generate income on their own terms.
- Peekaboo’s direct-sales model offers a disruptive alternative to traditional retail formats, such as bricks & mortar retail or online, and allows for leveraged growth. Sales growth is dependent on Stylists growth & revenue per Stylist, with low-cost Stylist sign-up ($49-$299) and lucrative compensation plan (15-35% commissions). Peekaboo Beans expects continued double-digit, year-over-year growth in their Stylist network. To support the independent Stylists, the Company invests in software systems for online ordering, marketing materials, and 24/7 training & support.
- High-quality clothing and designs resonate with parents and children. Appeals to socially responsible consumers as Peekaboo Beans focuses on ethically manufactured and environmentally friendly fabrics that are free from harmful toxins and chemicals, commonly found in fabric dyes. The Company creates fashionable clothes made with lightweight and breathable fabric that support healthy development at all stages of childhood, without sacrificing style.
- Strong revenue ramp up and margin expansion in the US market. The Company recently hired Cindy Tokoly to drive the U.S. Stylist recruitment and sales initiative. Management has guided to double-digit percentage growth in FY2018 and FY2019 sales. The initial results are impressive, with the U.S. accounting for 12% of consolidated sales in the month of January. As of March 1, 2018, the Company has recruited 162 US Stylists across 34 states. Gross margins are guided to trend towards the 25% level, an improvement of 6% over current levels. We think these are achievable forecasts, given the operating leverage in the business model.
- Strong management team supports the Company’s growth objectives. Traci Costa (Founder and CEO), Nikki Mayer (CFO and Director) and Darrell Kopke (Director and one of the founders of lululemon athletica Inc. (NASDAQ: LULU)) all have a long track record in apparel retail operations. Management has created a familycentric work culture that incentivises Stylists to stay with the Company long-term.
Financial Analysis & Valuation
To accelerate growth, in February 2018, the Company closed an oversubscribed $2.2M financing, offering units at $0.75/unit, consisting of one common share and ½ warrant, exercisable at $1.00/warrant for 2 years. The proceeds of the financing are earmarked for the ongoing U.S. expansion efforts and growing operations in Eastern Canada, along with the deployment of the global compensation plan in the back-half of FY2018. On a relative valuation basis, Peekaboo Beans stock currently trades at 1.3x EV/ Sales, a slight discount to the 1.4x commanded by its large-cap direct selling peers. We believe that at current levels, BEAN shares have an attractive risk/reward profile, given the embedded growth profile and outlook for significant margin improvement over the next 12-24 months.
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