Thursday, July 22, 1999
HOW DID IT DOUBLE?
Sunglass Hut has it made in the shades! For years, shares of the world's largest specialty retailer of sunglasses -- which has always been quick to hug prime walkway space at a mall near you -- were as unpredictable as the weather.
The stock was a six-bagger just three years after its 1993 initial public offering. A year later the shares were back where they started. Expansion, creditors, and managerial concerns became pesky storm clouds.
Then the company rolled the shades -- shades.com that is. The day the company announced it was buying up the eyewear cyber-merchant, the stock soared 30% on staggering volume of 15 million shares. While the transaction (which also included ownership of SwissArmyDepot.com) cost Sunglass Hut just $4 million, the stock's market cap had grown more than $100 million as a direct result.
Now in the spotlight, Sunglass Hut did not disappoint. Same-store sales and earnings turned higher. The storm clouds cleared. The sun rose again.
Based in Florida where shades are required wearing, Sunglass Hut operates 1,794 namesake stores worldwide, 109 Watch Station stores, and 80 locations combining both concepts.
12-month sales: $607.9 million
12-month income: $22.0 million
12-month EPS: $0.42
Profit Margin: 3.6%
Market Cap: $626.1 million
Cash: $6.1 million
Current Assets: $139.6 million
Current Liabilities: $88.1 million
Long-term Debt: $122.2 million
HOW COULD YOU HAVE FOUND THIS DOUBLE?
Despite the hoopla over shades.com, Sunglass Hut stock could still have been bought in the single digits two months after the online purchase announcement. While the company generated just $371,000 in Internet sales last quarter, it's definitely a new venture that has investors excited.
However, the company has been faring equally well offline. Monthly same-store sales have been positive through most of the fiscal year and are up a healthy 5.8% year-to-date. While total sales have crept up just 3.3% during that time, it shows a company that is making the most of its stores at the unit level.
Bright online. Bright offline.
WHERE TO FROM HERE?
While the individual sales trends are intriguing (fashion lines and polarized specs are selling well, the sport lines are not), the overall positive figure is a solid sign of surging popularity.
One of the main reasons for the favorable comps is that the company is taking many of its stores and turning them into combination stores, selling both sunglasses and wristwatches. The company is able to achieve this with the same labor demands and overhead as the exclusively Sunglass Hut or Watch Depot locations.
That is why the company is looking to have a total of 200 combination stores by the end of the year. The "200 by 2000" mantra means that the concept will expand by 150% in just a few months.
That should continue to plump up the same-store sales figures, and analyst projections seem to be carrying through with the company's farsighted plans. Earnings per share are expected to come in at $0.56 this year and $0.73 next year -- that's a 40% annualized growth rate over the next two years. That's an interesting value for a company trading at just half the earnings multiple based on next year's expected fiscal showing.
Regardless, we are about to conclude Sunglass Hut's "money" quarter. Unlike most retailers who rely on the winter holiday shopping season, this company's seasonally strongest period is the July quarter. Of course. It's summer. The sun is hot -- and apparently so is Sunglass Hut.
--Rick Aristotle Munarriz
Change the World... work for the Fool.
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