6/25/2015

Red Flags But Too Cheap To Ignore , Christopher & Banks (CBK)


Christopher Banks Corporation (CBK) is a retailer of women's apparel and accessories.CBK embraces an overlooked demographic, women 45 to 60 range. Stores are located in 43 states with 518 stores including 88 Christopher & Banks ("CB") stores, 75 C.J. Banks ("CJ") stores, 304 Missy, Petite, Women ("MPW") stores and 51 outlet stores. They also operate and ecommerce site at www.christopherandbanks.com Christopher & Banks founded in 1956, headquartered in Plymouth, Minnesota.

I've been watching CBK bounce off its 52 week low (06/16 $4.00) but unable to make time to post my thoughts. Insider buying is strong over the past 3 months, 125,740 shares purchased for $569,502 or $4.52 average per share. Broken down as follows, officers (CEO, CFO) purchased 86,000 shares for $400,900 or $4.66 per share, 10% owners 17,240 shares for $71,852 or $4.16 per share and VP 22,500 shares for $96,750 or $4.30 per share.

The red flags are with slower inventory turns, days sales outstanding, cash conversion, and cash flow from operations is less than NI for several quarters. This indicates aggressive accrual accounting (poor earnings quality) further evidence from the TTM Sloan ratio of 24.63. There are many positives now trading near its 52 low not to ignore the stock.

Positives:
CBK has strong financial position supported by zero long term debt, high Z score and positive cash flow from operations every year back to 2008, except 2013. Valuation is relative and historically cheap. TTM gross margins is 34.93% slightly higher than the annual average back to 2008. P/TB TTM is 1.15 versus the annual average going back to 2009 of 1.78.EV/Revenue TTM is .29 versus the average annual value of .33, 2009 to 2014.Historically the cash flows from operating activities has been sufficient with no need to access existing Well Fargo 50 million line of credit.


Price on 07/01/15 = $3.92

Market Cap:151.05M (versus prior 6 year average MC of 201.03M)
Enterprise Value: 120.72M(versus prior 6 year average EV of 147.32M)
Price/Book (mrq): 1.16
EV/Revenue (ttm):0.29(versus prior 6 year average EV/Rev of .333)
EV/EBITDA(ttm):7.39 (versus prior 6 year average EV/EBITDA of 18.34)
ROA(ttm): 25.39% (versus prior 6 year average ROA of 11.71)
Return on Equity (ttm): 38.21%
Revenue (ttm): 406.84M , Revenue Per Share (ttm):11.01
Qtrly Revenue Growth (yoy): -11.40%
Gross Profit (ttm): 147.79M
EBITDA (ttm): 15.94M , Net Income Avl to Common (ttm): 42.92M


Total Cash (mrq):36.28M  Total Cash Per Share (mrq): 0.98
Total Debt (mrq):  0.00  Total Debt/Equity (mrq):   N/A
Current Ratio (mrq):   2.39 , Book Value Per Share (mrq):3.63
CFFO(ttm): 21.69M , Free Cash Flow (ttm):-11.54M

52-Week Change:-53.49%
52-Week High (Sep 8, 2014):$11.22,52-Week Low(Jun 16, 2015):$4.00
Shares Outstanding:37.20M , Float: 34.23M
% Held by Insiders:2.33% ,% Held by Institutions: 87.60%
Short % of Float (as of Jun 15, 2015): 6.20%




Relative Valuation

CBK ranking within the Apparel industry;  Number 1 for financial strength, Number 1 for the largest price discount to its Graham number and Earnings Power Value, weakest 4 week stock price return, top 4 for Price/NCAV.

















































Catalysts:

Additional insider buying reported today(07/02/15), 10,000 shares purchased by two directors at $4.00 per share.

Target of Macellum Capital a successful activist in apparel retail industry that now owns about a 5.2% .

MD&A management optimistically wrote, "second half of the year, we expect sales growth to significantly improve due to a number of factors".

Value based mean reversion can push the stock higher as it moves towards historical valuations for sales, book, and industry.

Target market is women 45 to 60, overlooked less competitive demographic.   

Long CBK

1 comment:

johnheider1 said...

What is the break even point for sales, any idea? When the CEO announces they are hiring a consultant to analyze sales it usually means the Board is auditioning someone to take over for the CEO.