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Ticker: NYSE: Z
How Did It Double?
As a proxy for the health of the athletic footwear industry, the fortunes of Venator Group (NYSE: Z) are tied up inextricably with those of the likes of manufacturer/marketers Nike (NYSE: NKE), Reebok (NYSE: RBK), adidas and others. So when fashions moved away from hightops and toward the now-infamous "brown shoes" in 1998, catching leading shoe companies unawares, the retailers were summarily shellacked.
Business Description
Once known as F.W. Woolworth, Venator shed its department store, specialty footwear, and general merchandise operations to emerge in its current form in June 1998. The company now operates more than 4,000 stores in 14 countries, its best-known line the Foot Locker and Champs Sports chains of sports-themed apparel, merchandise and equipment.
Financial Facts
Income Statement*
How Could You Have Found This Double?
It's not uncommon for retail and consumer goods stocks to fall out of favor -- sometimes way out of favor. Even the best-known companies and most-established brands are victimized by, to various degrees, poor business execution, slowing growth, changing shopping trends, product cycles, and economic turbulence.
Where to From Here?
In August, Brian concluded that with Venator's share price on the rebound like Charles Barkley in a huff, "Venator again has expectations built into it. It's no longer a bottom-feeder play, it's a full turnaround play. Management has shown some ability to deliver, but this is still a tough, cyclical, asset-intensive business. I'm content to let the money managers puff on this one."
Phone: (212) 720-4477
Website: http://www.venator.com/
Price (12/28/00): $16.00
The recovery, over the last several years, of the manufacturers has been steady and costly, but -- as Motley Fool stock analyst Bob Fredeen suggests in his Industry Focus 2001 report on athletic footwear -- appears to be gaining traction.
Increasing signs of just such a turnaround are showing like seams on an old running shoe at Venator, where through the first three quarters of fiscal 2001 (ended Oct. 28) sales from adjusted operations rose 10.8% year-over-year, same-store sales and gross margins improved, debt levels decreased and inventory management improved. All this has helped Venator investors to a nifty rise of nearly 120% year-to-date.
12-month sales: $4,378 million
12-month income: $77 million
12-month EPS: $0.56
Profit Margin: 1.8%
Market Cap: $2,232 million
*Excludes discontinued operations and one-time charges
Balance Sheet
Cash: $18 million
Current Assets: $1100 million
Current Liabilities: $792 million
Long-term debt: $259 million*
*Includes obligations under capital leases.
Ratios
Price-to-earnings: 28.6
Price-to-sales: 0.51
When this happens -- as it did with Venator and, does, presently to such companies as Circuit City (NYSE: CC), KMart (NYSE: KM), and J.C. Penney (NYSE: JCP) -- the opportunity may arise for investors to find attractive valuation opportunities in well-known companies with strong brands, well-established distribution channels, and strong market share.
Still, what falls down does not necessarily go up -- and with large companies especially, patience is a virtue akin to godliness. In cases such as these, it's the investor's job to identify where the problems lie and begin tracking a company's progress toward fixing what ails it. In Venator's case signs of Trouble were identified early on, but the fix was anything but immediate.
Still, powered by a reinvigorated industry that has helped same-store sales and asset sales that have cleaned up the balance sheet, it came -- as chronicled by Brian Lund in an August News & Commentary article.
It's a worthy statement. Whether you plan on selling or not, as a once depressed company starts to come around and its share price responds, it tends to look less and less like a valuation play and more like a growth play -- and with heightened expectations comes the heightened possibility for disappointment.
The triple-digit price tags Venator chains put on today's hottest basketball and other sports shoes are a far cry from the chain's Woolworth heritage: the company was a famed "five-and-dime" around the turn of the 20th century. Now it is a bellwether for the sporting footwear industry, and as such investors watching this company must carefully monitor its suppliers -- Nike and the others that provide the creative engine behind the industry -- to stay abreast of trends.
Fool Fredeen is optimistic about 2001 from the perspective of both the shoe marketers and the retailers, Venator among them. With the retailers posting solid same-store sales in 2000 and, as he writes, "two of the biggest players [Nike and Reebok] in the industry... starting to sound like a couple of hard-hitting, trash-talking schoolyard hoops players," there maybe indeed be reason to shop Venator. Still, investors should watch this in-progress turnaround carefully with economic fortunes not quite ideal.
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