'Tween Purchases Yield Big Profits

Are you having trouble finding cash-rich, debt-free companies that are growing quickly? Sit back and take a look at 'tween (that's seven- to 14-year-old) girls' apparel retailer Too (NYSE: TOO).

The company announced today that its same-store sales for the nine weeks ending Jan. 1 are expected to be up 3% to 4% over the corresponding period last year. Better yet, net income is expected to soar 21% over last year's fourth quarter.

Too, a spinoff from The Limited (NYSE: LTD), has been on an earnings roll. As Fool writer Alyce Lomax commented in November, this year's first nine months produced $9.2 million in free cash flow (versus a loss last year). Being cash-rich is nice, but a retailer producing positive free cash flow outside the Christmas season is truly gifted.

While the 575 Limited Too stores are the bread-and-butter operation, it is the company's 35 value-priced off-the-mall-location Justice stores that bear watching when the company releases year-end earnings on Feb. 16. So far, Justice has not cannibalized sales from its higher-priced parent. But can it operate profitably while taking sales away from Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and Gap (NYSE: GPS)? We shall wait and see.

Too's focus on girls has built a $135.9 million mountain of cash. The stock, trading at 20 times 2005 earnings estimates, looks reasonably priced to me given the robust sales and earnings growth the company is experiencing. Add in the potential of the Justice stores, which are now reaching a size where that potential can be measured, and you could have a reason to like the stock even more.

The Motley Fool is investors talking to investors. Join in the discussion of Too and The Limited on the Motley Fool discussion boards.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.