Stage Stores (SSI) operates department stores in rural towns across the U.S. via brands that almost no one has ever heard over (Peebles, Bealls, Stake, Palais, etc.). The company was on track for bankruptcy… (Note this is a highly speculative idea in a volatile stock with average volume below 1 million shares). The company bought 58 department stores from bankrupt Gordmans in 2017. They turned these into off-price stores (think TJ Maxx (TJX), Ross Stores (ROST), etc.). Off-price stocks have done extremely well as they continue to increase sales. ROST sales are up 50% from 2015 while TJX’s is up around 30%. These companies offer customers brand-name products at discount prices in a treasure hunt store environment.
Stage Stores currently has 158 stores operating under this format. Off-price has been so successful that the company announced that by end-2020 they will convert ALL its stores to Gordmans (700 total). Assuming 5% growth for current stores (just below comps TJX 6% 2020E, ROST 7% 2020E) and for the stores to be converted assume a 20% rise (much below initial converts), a COGS at same level as last year and SG&A 3.7% lower (equivalent to the drop experienced in Q3). The result is a $60m EBITDA. At a 20% discount to comps the equity is worth around $13 (or double the current price). Like I said this is very speculative and one may want to wait for more evidence. In any case, it’s worth putting on your watch list.
To read full article see: https://seekingalpha.com/article/4313132-stage-stores-be-multi-bagger
