Is Goody's Still Good?

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Last month, when running clothier Goody's Family Clothing (Nasdaq: GDYS) through a simple value analysis, I concluded that this company looked like the proverbial "good company at a great price." One kind reader, who had followed the company through many ups and downs over the past few years, pointed out that no matter how cheap he had thought Goody's might be in years past, he often found that it could become a whole lot cheaper with little warning.

This voice of experience had me a bit worried when the company's results came out last week -- the numbers didn't look so great after all. Not to worry, however. The market has apparently learned not to expect a whole lot from Goody's and had already shaved enough points off of the company's stock price that the reaction to the bad numbers was muted. In point of fact, at close of trading for the week, the company's stock price was more or less where it had been before Goody's second-quarter results were released on Wednesday morning. Nonetheless, take this as a word to the wise.

Now that I've passed on that warning, let's turn our attention to the numbers themselves. Quarter over quarter, Goody's experienced an 81% decline in net earnings, from $0.21 to $0.04, on flat sales overall, and a small decline in comparable store sales. Even if you back out a one-time credit the company received in Q2 2003, the decline in profits would have been 69%. If you take a somewhat longer-term view, the results look less bad (I hesitate to call them "better"). Comparing the first half of 2004 to the first half of 2003, profits were essentially flat; total sales increased 3.5%, and comparable sales were up 0.9%. All in all, an underwhelming performance.

Regardless, the fact remains that the company is not doing horrible business, and its underlying assets remain strong. And when I say "assets," I mean cash -- $108 million of it, or roughly 40% of Goody's market cap. Goody's also continues to rake in considerable free cash flow. Stack it up against some of its more profitable retail clothier rivals, such as J.C. Penney (NYSE: JCP), Sears (NYSE: S), or Wal-Mart (NYSE: WMT), for example, and you will see that neither of the first two can match Goody's record of generating free cash flow. And both of the latter two have considerably more debt-laden balance sheets.

Fool contributor Rich Smith owns no shares in any company mentioned in this article.