Forget about trendy stores like New York & Co. (NYSE: NWY ) or mall rat specialists like Aeropostale (NYSE: ARO ) . Stage Stores (NYSE: SSI ) , which reported first-quarter results last week, does its best work in more pastoral settings, where there aren't dozens of retailers competing for the same customers.
Stage Stores, which sells apparel and shoes for the whole family, also stands out for being one of a relatively small group of companies that actually benefited from making a big purchase. Acquiring Peebles has proven to be a major boon, and while this isn't a story with much flash or sizzle, management seems to be consistently getting the job done.
Revenue growth of nearly 11% and same-store growth of more than 3% for the quarter look fine, but there was a little more going on under the surface. Stage Stores was still ironing out some merchandising and distribution problems at Peebles during the quarter, and much of that growth came from the very strong 16.9% comp-store result for April.
While there was some improvement in gross margins, there wasn't a tremendous amount of bottom-line growth this period. Even when you add back the impact of stock options expense and certain acquisition costs, EPS growth was about 10%. That's not bad relative to the valuation here, but investors shouldn't forget the link: This stock carries a lower-than-average relative valuation mostly because Stage Stores' growth prospects aren't quite so eye-popping.
That's not to say there aren't still avenues for growth. The company will be converting recently acquired B.C. Moore stores to the successful Peebles format and also launching more Estee Lauder (NYSE: EL ) counters in its stores. And though Wal-Mart's (NYSE: WMT ) desire to move upmarket and into higher-end stuff may be a bit of a threat, we'll just have to wait and see how much traction that really gets.
By and large, I like to buy retailers when they are left for dead by the market but not by their customers. And I made money in the past with precisely that scenario at Stage Stores. Given today's valuation, I think this stock can continue to be a solid performer, but it's not so cheap as to draw me in for an encore.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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