The retail stocks we have identified have been beaten down recently and could be poised for a rebound
SmallCapPower | January 7, 2019: According to Statista, the Canadian apparel market was valued at $26.7B in 2017. This value is expected to grow to $30B in 2020, implying an annualized growth rate of 3.7%. Alternatively, the U.S. apparel market was valued at $317.8B in 2017, and is expected to grow to $341.7B by 2020, which implies an annualized growth rate of 2.4%.
The apparel industry is a large industry with stable growth, however, it is also highly fragmented with five top competitors that account for ~12% of total industry sales. Today, we have identified five retail stocks that have been beaten down compared with the rest of the market and are trading at a steep discount. For reference, the five stocks we have featured are down an average of 34.9% over the course of the past three months. In comparison, the S&P 500 and TSX were down 14.2% and 10.7%, respectively.
* All figures in $CAD, unless otherwise noted
*Share prices are as at close 02-Jan-2018
Roots Canada Corp. (TSX:ROOT) – $3.20
Retail – Canadian Apparel
Roots is a Canadian lifestyle brand founded in 1973. The Company was originally inspired by the Canadian outdoors and has evolved into a complete lifestyle brand with a unique collection of premium apparel, leather goods, accessories, and footwear. Roots products are distinguished by their characteristics style, comfort, functionality, and versatility. As such, the brand enjoys widespread popularity among students, young professionals, families, athletes, entertainers, and influencers. Roots operates 116 retail stores in Canada, 109 partner-operated stores in Taiwan, 27 partner-operated stores in China and four retail stores in the United States. Roots stock currently trades at a discount at 6.4x 2019 EV/EBITDA multiple, compared to the average of 8.6x.
- Market Cap: $134.8 million
- 1-Month Return: – 30.4%
- 3-Month Return: – 47.9%
- 2019 EV/EBIDTA Multiple: 6.4x
- 2019 EV/EBIDTA Multiple: 5.7x
- Same-Store-Sales Growth YoY: Not Reported
Freshii Inc. (TSX:FRII) – $2.63
Retail – Healthy Fast Food
Freshii is a health fast food restaurant chain popular among Millennials. The Company added 18 stores in Q4 FY2018 for a total store count of 431 locations. The Company had operations in 16 countries including: Canada, US, Ireland, Sweden, Netherlands, UAE, and Saudi Arabia. Freshii’s restaurants range in size from 300 to 2,500 sq. ft with an average of 1,200 sq. ft. Freshii offers a menu tailored to the cultural tastes and trends of each individual region within which it operates, with the focus on healthy, fresh food at an affordable price. Freshii stock currently trades at a discount at 5.0x 2019 EV/EBITDA multiple, compared to the average of 8.6x.
- Market Cap: $81.9 million
- 1-Month Return: – 1.5%
- 3-Month Return: – 42.8%
- 2019 EV/EBIDTA Multiple: 5.0x
- 2019 EV/EBIDTA Multiple: 4.0x
- Same-Store-Sales Growth YoY (Q3F18/Q3F17): – 0.8%
GNC Holdings, Inc. (NYSE:GNC) – US$2.51
Retail – Supplements
Founded in 1935 in Pittsburgh, Pennsylvania, GNC Holdings is a speciality retailer of health, wellness, and performance products. Operating through domestic, international, and manufacturing/wholesale segments, the Company is a retailer of diet, sports nutrition, and health and wellness products. While also providing third-party contract manufacturing services, GNC’s multi-channel business derives revenue from product sales through a variety of platforms. Currently trading at a discount, the Company’s stock price has declined by 86.1% since its IPO filing price of US$16.75 on April 1, 2011. The Company took a dip on November 7, 2018 after entering into an Amendment to the Securities Purchase Agreement with Harbin Pharmaceutical Group Co., Ltd. (“Hayao”). Hayao’s US$300 million investment consisted of three separate tranches, with the second US$50 million investment made on December 28, and the final issuance to be made by February 13, 2019. GNC stock currently trades at a discount at 6.7x 2019 EV/EBITDA multiple, compared to the average of 8.6x.
- Market Cap: US$210.6 million
- 1-Month Return: – 13.7%
- 3-Month Return: – 40.0%
- 2019 EV/EBIDTA Multiple: 6.7x
- 2019 EV/EBIDTA Multiple: 6.1x
- Same-Store-Sales Growth YoY (Q3F18/Q3F17): – 2.1%
J.Jill Inc. (NYSE:JILL) – US$5.19
Retail – U.S. Apparel
J.Jill was founded in 1959 as a single specialty story in Massachusetts and has expanded into a nationally-recognized omnichannel brand, with over 270 retail stores, an e-commerce website, and a catalog business. The Company designs simple and relaxed women’s clothing, accessories, and footwear, while also running the J.Jill Compassion Fund in support of disadvantaged and homeless woman. With an IPO price of US$12.95 on March 10, 2017, the Company’s stock price declined ~60.4%. Its stock experienced its first plunge of approximately ~52.0% after its trading session on October 6, 2017, driven by a fiscal third-quarter sales and earnings update, forecasting same-store sales to decline 3%-5% in Q3. J. Jill stock currently trades at a discount at 4.1x 2019 EV/EBITDA multiple, compared to the average of 8.6x.
- Market Cap: US$227.1 million
- 1-Month Return: – 18.9%
- 3-Month Return: – 12.3%
- 2019 EV/EBIDTA Multiple: 4.1x
- 2019 EV/EBIDTA Multiple: 4.0x
- Same-Store-Sales Growth YoY (Q3F18/Q3F17): 1.0%
Express, Inc. (NYSE:EXPR) – US$5.35
Retail – US Apparel
Express, Inc. is a specialty retailer that caters apparel and accessories towards young men and women. Founded in 1980 in Columbus, Ohio, Express derives revenue through its e-commerce website, mobile app, and store front Express locations throughout the United States, Puerto Rico, and previously Canada. With an IPO price of $15.86 on May 14, 2010, the Company’s stock has decreased 67.5% since. EXPR stock currently trades at a discount at 2.3x 2019 EV/EBITDA multiple, compared to the average of 8.6x.
- Market Cap: US$366.3 million
- 1-Month Return: – 18.6%
- 3-Month Return: – 45.7%
- 2019 EV/EBIDTA Multiple: 2.3x
- 2019 EV/EBIDTA Multiple: 2.2x
- Same-Store-Sales Growth YoY (Q3F18/Q3F17): – 5.4%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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