Benj Gallander Reitmans RET-T PAST TOP PICK Sep 26, 2017

Doesn’t like Canadian retail space in general – slowing housing market. There are a lot of US retailers moving in from a competitive perspective. RET trades at a low multiple and is beaten up, so not expensive but he would avoid it.

(Market Call Minute.) Too late to sell this one so he would Hold.

Retailer with about 920 stores in Canada under a number of different banners. Very high dividend yield of over 10%, but are not earning it. There is a lot of competition in fashion retailing and analysts are concerned that they are not appealing to the younger/hipper audience. Owners have many years of experience and he thinks they can reinvent themselves. However, in regards to the dividend, they are over distributing but they have a rock solid balance sheet. Had problems with distribution and had to spend money to automate this but this is now behind them.

Retail landscape in Canada has changed quite dramatically, and this company has been very much impacted by the incursion of the Wal-Mart’s and Targets and discount chains. They are in a very difficult position. In today's environment, it has lost its lustre as a dividend provider. Have good retail locations and a reasonably desired product, but people just aren't shopping at those types of locations anymore.

When looking at Canadian consumer discretionary names, you want to remind yourself that the Canadian consumer, at some point, is going to slow their spending. Household debt levels have continually risen over the last 5 years. Today debt, as a percentage of income, is among the highest it has ever been. At some point the consumer is going to slow, and that will certainly put downside pressure on all these names. He prefers the US side for the consumer discretionary space.

A tough market because of Amazon (AMZN-Q) and the Internet. The major knock is that they are losing money. Last quarter they lost millions of dollars as well as in the quarter before. However, they have over $100 million in the bank. Margins have been squeezed because the US$ has gone up in the past year. Revenues have been flat for the last year which a lot of people felt was not good, except they closed 60 stores. Same-store sales have gone up about 8.8%. Included in that is the 56%+ that their online sales have gone up. Dividend yield of 4.85%.

A value trap. Clothing retailing is one of the toughest businesses out there. This is well-managed, but they can’t fight the trend. Closed a huge number of stores. They’ve tried to cut costs, but he thinks they are still losing money despite some recent same-store sales growth. Not sure how long they will continue paying dividends.

There are no analysts/estimates for RET.A, insiders owns around 57% of the company. 4Q sales increased by 11.4%. 
Marketing helped store traffic but higher costs and macro headwinds hurt the quarter.
Comparable sales rose 12.7%, with e-commerce sales 34% of the total. The 4Q profit was also impacted by higher incentive awards to staff. 
After a huge run-up, reality has set into the stock, and it is down sharply from its high in February. 
Comp. sales numbers are good, but we would like to see some more cost control here. 
The valuation is cheap and the balance sheet is fine and the trailing twelve-month cash flow of $150M is quite solid. 
We think the company could be trading around 8x – 10x P/E. 
We consider the name to be highly volatile. 
After the big drop we would be more comfortabele entering while being mindful of its size risks. 
That being said, we would prefer to see another couple of quarters to see if costs can get under control better. 
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