Buying A Retail Name

“A public opinion poll is no substitute for thought.”

― Warren Buffett

The Portfolio

Despite a level of uncertainty rarely seen in global markets, our portfolio is holding up well delivering growth, performing better than the S&P 500 and all with lower volatility....so we can Stay Invested.

Today's Buys:

BOUGHT 200 shares of TLYS @ $7.90/share.

Today I did some homework on a retail name, Tilly's. I can't remember a worse time to invest in retail, so that's exactly where I like to look for a possible winner. I like train wrecks, and right now retail in general looks like a train wreck, but there are some stand outs. Most of us see a train wreck as a smoldering pile of junk and destruction. But an investor looks through the smoke to see if there's value lying there to be picked up. I think Tilly's is just such an opportunity. Looking at the 1-year chart below we can see that Tilly's has destroyed a great deal of shareholder value.

Right now Tilly's is trading at $7.84, down from a high last September of $25.14. If I look back 2 years, the low is $7.24, suggesting that the stock is very cheap at current prices. Let's make sure this isn't a value trap.

The Macro View

The US consumer is strong and doing well. Wages are up, mostly due to more hours being worked ( a measure of productivity increases) and the change in the withholding tables. The extra cash is being spent by consumers, but maybe not in traditional ways. Target, WalMart, Home Depot and Williams-Sonoma are doing great, while Nordstrom's, Lowe's, Macy's and Kohl's (all the apostrophe S stores) are struggling. The struggling list is actually a lot longer, and no Amazon isn't killing them; its simply some changes in consumer tastes and a variety of structural changes internally at all of these stores. Specialty retailers and discount stores are where the best performance is coming from. I think Tilly's focus on unique merchandise, store locations and new store openings will improve earnings and revenues over the next 2 quarters.

So why Tilly's?

Tilly’s is a fast-growing destination specialty retailer of West Coast inspired apparel, footwear and accessories. We believe we bring together an unparalleled selection of the most sought-after brands rooted in action sports, music, art and fashion. Our stores are designed to be a seamless extension of our teen and young adult consumers’ lifestyles with a balance of guys and juniors merchandise in a stimulating environment. We believe our success across a variety of real estate venues and geographies in the United States demonstrates Tilly’s portability. Our motto “If it’s not here…it’s not happening” exemplifies our goal to serve as a destination for the latest, most relevant merchandise and brands important to our customers. We also sell our products through our e-commerce website, www.tillys.com. Tilly’s differentiates itself by offering an extensive assortment of relevant merchandise in a larger store format and by providing our customers with a vibrant, stimulating and authentic environment that is an extension of our customers’ high velocity, multitasking lifestyle. We believe the Tilly’s experience drives customer awareness, loyalty and repeat visits while generating a buzz and excitement for our brand.We believe our geographic portability and real estate flexibility provide us with a wider scope of opportunities and enhance our ability to open new stores. Our West Coast heritage dates back to 1982 when our founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. We believe our team’s passion for the West Coast inspired and action sports lifestyle, sense of urgency and pursuit of excellence enables Tilly’s to consistently deliver a superior customer experience and positions us to successfully execute our long-term growth strategy.

Tillys is a leading specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and currently operates 229 total stores, including four RSQ pop-up stores, across 33 states.

Tilly's brands include:

  • Adidas

  • Amuse Society

  • Billabong

  • Blue Crown

  • Brixton

  • Calvin Klein

  • Champion

  • Charles And A Half

  • City Classified

  • Converse

  • Corkcicle

  • Dark Seas

  • Death Coast Supply

  • Diamond Supply Co.

  • Dickies

  • Dirty Laundry

  • Dr. Martens

  • Electric

  • Element

  • Elwood

  • Ethika

  • FILA

  • Fox

  • Full Tilt

  • Funko

  • G Shock

  • Herschel Supply Co.

  • HUF

  • Hurley

  • Hydro Flask

  • Ivy & Main

  • JanSport

  • Keds

  • La Familia

  • Last Call Co.

  • Levi's

  • Lira

  • LRG

  • Neff

  • Nike SB

  • Nixon

  • Oakley

  • O'Neill

  • OP

  • Others Follow

  • Patrons Of Peace

  • Penny

  • Popsockets

  • Primitive

  • PSD

  • Pura Vida

  • Quiksilver

  • Rainbow

  • Rastaclat

  • Ray Ban

  • Reef

  • Riot Society

  • Rip Curl

  • Roxy

  • RSQ

  • Russell Athletic

  • RVCA

  • Salty Crew

  • Santa Cruz

  • Sisstrevolution

  • Sky And Sparrow

  • Soda

  • Spy

  • Stance

  • Steve Madden

  • Suavecito

  • Sun Bum

  • Sunnylife

  • The North Face

  • Timberland

  • Tommy Hilfiger

  • TOMS

  • Under Armour

  • Vans

  • Vissla

  • Vogue Eyewear

  • Volcom

  • Von Zipper

  • West Of Melrose

  • Wildflower

  • Young & Reckles

What the analysts think:

Bank of America's David Buckley maintains a Buy rating on Tilly's with a price target lowered from $14 to $13.

The Thesis

Tilly's saw a slow start to its first quarter but Wednesday's earnings report showed comp growth of 2.4 percent and in-line EPS of 2 cents, Buckley wrote in a note. The online business performed well as e-commerce sales increased by 30 percent and now accounts for 15 percent of total sales.

Quarter-to-date trends are off to a slow start with a 6.6-percent decline in traffic. The analyst said this trend is consistent with what is seen in the broader retail sector but the business should turn around. Specifically, weather improvements in Florida and the Northeast region is a "promising sign" sales could improve from the normalization of weather.

As such, sales growth is likely to accelerate from 2 percent in the first half of the year to 6 percent from a combination of 4 percent store growth (11 new stores set to open) while e-commerce growth could slow down but still increase at a 15-30 percent rate.

Zack's Research ranks every industry. In terms of the Zacks Industry Rank, Retail - Apparel and Shoes is currently in the top 33% of the 250 plus Zacks industries. Their research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Tilly's revenue growth was higher than the industry average of 18.3%. Since the same quarter one year ago, revenues slightly increased by almost 4%. This revenue growth seems to have found its way down to the company's bottom line, improving the earnings per share.

Tilly's has no debt and sports a Quick-Ratio of 1.54. I like any Quick ratio above 1.0 as this is an indication that the company can pay its short term obligations. In retail this is an important metric as retailers need to be constantly changing out and updating inventory.

Tilly's improved earnings per share over 26% in the last quarter compared to the same quarter a year ago; this is an ongoing pattern of positive earnings per share growth over the past two years.

Tilly's P/E ratio of 9.38 is significantly below it's peers and the S&P 500 average. While sales growth isn't as high as I'd like to see, Earning Growth is 2.5 times higher than its peers. That earnings growth, which I think will continue is likely to drive stock prices higher.

Buy below $8.00

My 12 month price target is $12 (50% upside)

"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and use sun screen"

- Clay Baker

Stay Invested,

Clay

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Keep Me Honest

  1. S&P 500 declines to 2,350 or more (1-3-2019)

  2. Healthcare and Biotech sectors outperform (1-3-2019)

  3. S&P reaches 3,000 by year end (1-11-2019)

  4. CSCO reaches $60/share (1-18-2019)

  5. VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)

  6. CVS reaches $91.50 (2-27-2019)

  7. Bull market takes another leg up (4-7-2019)

  8. The Fed will lower rates 1-2 times (5-13-2019)

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't

Rule #4: When a good stock you own drops 10% below your cost basis, add shares

Rule #5: Bull markets aren't sustained without the Transports

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD, HD, AWR, XLNX, MRVL

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved