Christopher & Banks Corporation (NYSE:CBK) is another cheap, scary stock in the Small and Micro Cap Screener. With a market capitalization of $65 million, net cash of $36 million and operating earnings of $8 million over the last twelve months, CBK trades on an acquirer’s multiple of 3.73x, and a PE of 1.5x. It’s got an ugly -8 percent free cash flow / enterprise value yield, but has managed to buy back a paltry 0.7 percent of its stock over the last twelve months. CBK is a retailer of womens apparel and accessories in the United States, which is an industry I hate. In short, it’s as ugly as they get, which is why it’s as cheap as it is. The good news is that one of the shareholders has turned activist, and it might be ready for some life.
Long/short equity, deep value, special situations, growth investor Stockpucker doesn’t love it, but gives a good overview of the activists and their complaint:
…Christopher & Banks (NYSE:CBK) is finding some love. Macellum Capital owns about a 5.2% stake and has been active in the name since early April. It isn’t your typical activist, but it does know retail. Recall that it’s had success with effecting change at GIII, Hot Topic, Collective Brands, Children’s Place, etc. in the past.
With a focus on women’s apparel, CBK is in the sweet spot of retail, as opposed to those targeting more fickle teens [read: Abercrombie, American Eagle (NYSE:AEO), etc.]. However, profitability has been in rapid decline, hence the massive sell-offs since October.
Side note – Macellum pointed out that insiders were dumping the stock just before the huge sell-off in October, indicative of the fact that they aren’t confident of a turnaround anytime soon.
The rapid decline in CBK’s stock comes as same store sales have gone from a positive 4.9% in 3Q13 to a negative 7.6% in 3Q14 and then a negative 7.5% in 4Q14. EPS consensus for 2016 is now in the tank, with 2016 consensus EPS going from 80 cents in 3Q14 down to 30 cents currently.
We’re going to need a turnaround of large proportions.
The company has been blaming issues on poor execution with local fashion shows (where it surprisingly derives a lot of its sales) as well as the port strike, which delayed merchandise deliveries. But other retailers haven’t felt the same pressure with port strikes. And the fact that it’s having trouble at fashion shows could be a bigger problem, where it’s losing touch with its customers.
The thesis is to get new leadership in there, but it has already had four CEOs in the last five years. The board includes all Minneapolis-based business people, so some new blood is needed. Yet Macellum missed the deadline for nominating board members this year and the fund has never waged a proxy battle, either.
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