It's been a busy couple of weeks for teen apparel retailer Deb Shops
Investors can trace the increase in earnings to the company's ability to hold the line on selling, general, and administrative expenses (SG&A), and on depreciation expense, as well. Both of these are the result of the fact that Deb Shops is pursuing a reasonable store-expansion policy and closing underperforming stores. These factors allowed the increase in sales at existing stores to largely fall through to the bottom line. The company also received a sizeble boost to its earnings per share from the interest on its cash balances, but with the special dividend payment looming, that amount should decrease in the coming quarters.
Deb Shops is also debt-free and experienced a strong 6.9% same-store sales increase in the first quarter. The strong same-store sales number easily trumps those handed in by a number of retailers recently. It's somewhat surprising, but given the same-store sales performance, it appears that Deb Shops is doing a better job of pulling in teen shoppers than Motley Fool Stock Advisor pick Gap
At a trailing P/E of 21 and enterprise value-to-free cash flow of about 12, Deb Shops' shares are not wildly priced given the strong expected earnings performance and the special dividend payment. Particularly when you consider that after the special dividend payment, the company will still have over $6 in cash per share sitting on the balance sheet and it pays out a respectable $0.125 per quarter in regular dividends as well.
While it appears the market is finally realizing an interesting value, it's important to consider how long the company can hold onto the hearts of notoriously fickle teen shoppers. Admittedly, this isn't something I have a good grasp on, so I'll be passing for now, but should the shares get cheaper, I'd be intrigued enough by the balance sheet strength to take a second look.
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