Wednesday, January 13, 2010
Have Wall Street Analysts been lulled by the recent rally into expecting good earnings reports from every retailer? There is simply no other explanation for the pounding the market has given Cache. OK, sure, I own it. So what. Maybe you should too. (Important Caveat: This Blog is for Entertainment Purposes Only!). This boring women's apparel retailer has the one thing I love in a retail stock: No Expectations. There is also no fashion story, no margin story (oh, really?), no growth story. Hmmm. Why do I like it? Cache is in the midst of a cost reduction effort that is simply a matter of doing what best-of-class retailers already do: Put people in place in source countries to reduce mark ups from wholesalers and turn a variable cost into a fixed cost. If successful, operating margin should improve by several hundred basis points, which from this low level, is nearly a double. With no debt and several bucks a share in cash, there starts to be some kind of story there once the margins start improving. That's why i'm in now! Once the margin gain shows up in a news release, that's the Pavolovian signal for sell side research to jump into action, and it will be too late for me. But to sell it down 8% because of a shortfall in earnings at Christmas -- note: at least they had Earnings! -- seems short sighted given what's coming.