Haggar Not So Haggard

By most reasonable standards, Haggar's (Nasdaq: HGGR  ) performance over the past decade or so has been pretty haggard. It's not easy selling mid-priced mass-market merchandise through stores like J.C. Penney (NYSE: JCP  ) , Kohl's (NYSE: KSS  ) , and Wal-Mart (NYSE: WMT  ) , and the numbers reflect that.

Long-term revenue growth has barely been above 1%, and both operating and net incomes have been erratic -- growing only by single digits. Return on equity? Never above 7%. Making matters worse, free cash flow has actually declined over the long haul. No surprise, then, that the stock spent most of the past decade vibrating around in the low teens.

But the cavalry has arrived. An investor group comprising an investment company, a merchant bank, and a Chinese manufacturing company has stepped up and offered $29 a share in cash for the company. Presuming that the deal clears the relevant regulatory hurdles, it will be a nice gain for anybody who purchased these shares in the past 10 years or so -- although it's a good bit below the all-time high reached back in early 1994.

In the press release announcing the deal, Haggar's CEO mentioned that the deal would accelerate sourcing efforts and strengthen the company's marketing power. Maybe that's true, but who cares? I'll concede the possibility that the statement was made for the benefit of company workers, but shareholders shouldn't really be that impressed. The relevant point is that the company is going bye-bye, and the best thing about this deal is that it gives shareholders a solid cash return on their investment that management was unlikely to be able to match with its own continued efforts as a public company.

So what are the lessons here? Well, obviously a hot retailing market doesn't mean that all associated companies do well. After all, look at Phillips-Van Heusen (NYSE: PVH  ) and you see a much different picture than you do for the likes of Haggar, Oxford Industries (NYSE: OXM  ) , or VF Corp (NYSE: VFC  ) .

It's also perhaps a lesson that metrics like return on equity and cash flow generation do matter. I don't think it's a coincidence that the stock was stagnant with such low-end performance by those standards. Although investors got bailed out of this one at a nice price, this strikes me as more of the exception than the rule, and investors would do well not to look for other buyers to bail them out of an unsound investment idea.

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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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