These three companies just didn't live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down.
Where everybody knows your name
Let's start with an old friend: Pier 1 Imports
The company reported a "31% improvement" on the bottom line; its $0.34 net loss per share was that much smaller than last year's $0.49 of red ink per share. Back out a few inconvenient charges, and you get a svelte $0.28 net loss per share -- still much worse than the average analyst's $0.24-per-share expected loss. This marked Pier 1's sixth missed analyst target in the last 10 quarters.
Store comps declined 1.7% year over year, and net sales slimmed down from $345 million to $320 million. On the positive side, there's slightly more in-store foot traffic these days, and the margins are headed in the right direction. Moreover, Pier 1 saw $1.2 million in positive cash flow from operations in the first and second fiscal quarters combined, compared to the negative $53 million from the same two quarters last year.
But it's still way too early to signal "turnaround complete" here. Management withdrew its earlier 2009 guidance and told us to just keep an eye on gross margins and operating profits. If recent store traffic trends continue, the holiday season should be pretty decent. At some point, Pier 1 might become a good value play, but even sector leaders like Bed Bath & Beyond
And they're always glad you came
Scrape one B off Bed Bath's ticker, and you get Best Buy
But management reaffirmed its earlier earnings target of $3.25 to $3.40 per share in fiscal 2009. That would mean at least $2.34 per share in the second half, about $0.10 more per share than the year-ago level.
The company is remodeling all 973 of its U.S. stores and staking its first claims in growth markets like Turkey, China, and Mexico. Walking into a Best Buy store last night, I was greeted by a large Apple
In short, Best Buy's outlook is solid, and the stock is 15% cheaper than this time last year. If I were buying retail stocks today, this one would certainly be on my watch list.
Cheers!
That brings us to corporate uniform designer and manufacturer Cintas
Despite job cuts at Cintas' large customer businesses, and a generally tough economic environment, "results through the first quarter are in line with our full year fiscal 2009 plan," said CEO Scott Farmer.
Despite the cheerful management comments, Cintas' stock took an 8.7% dive last week. But Cintas is a five-star CAPS stock thanks to rock-solid margins, a strong balance sheet, and a miles-wide business moat. Cintas commands a market cap six times the size of nearest competitors G&K Services
Yet Cintas doesn't really get a valuation premium for its tradition of excellent execution. The trailing P/E ratio of 14 is in the same league as its smaller peers, but without the business scale to withstand short-term market crises. A cheap Cintas looks like a great value to me.
Where's Norm?
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps, and which ones are stuck in the mud for real.
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