The stock of women's retailer Coldwater Creek (NASDAQ:CWTR) has been on a tear since March 2003. The stock has risen 11.9 times from its split-adjusted closing low and set a new all-time high Wednesday, after announcing third-quarter results Tuesday night.
Revenue increased 26% from the comparable quarter last year, while net income soared 37%. It was an outstanding quarter, and the peak holiday season is yet to come. Let's peek into what's working and what's expected to happen.
Retail sales (60.6% of total sales) increased by 44%. That doesn't look impressive if you consider that the number of full-line retail stores increased 52.3% to 163 locations, compared with 107 locations at the end of the prior year period's third quarter. Ah, but the rapid store-growth number is misleading. Operating margins for the entire company, which is what really counts, rose from 10.1% last year to 10.3% this year.
The company's other operations, which includes Internet and catalog segments, realized a 7% sales increase. That may look weak, but consider this: The company's Internet operation still managed a 21% sales increase (yet is just 24.7% of total sales). That's strong. And although catalog sales fell 11%, it is important to realize the company's expanding retail base allows customers to pre-shop in the catalog before heading for the store -- or even the Internet.
Coldwater Creek is rolling in the green, too, with $104.7 million in cash and no debt.
So what's the catch? Well, this company, with its rock-solid balance sheet, booming sales, and improving operating margins, does come at a price. Although analysts expect the company to grow earnings by 27.5% annually for the next five years, the stock is selling for somewhere around 48 times this year's expected earnings.
So, is Coldwater Creek reasonably priced? It's a little on the rich side if compared with fast-growing peer Chico's FAS (NYSE:CHS), which trades for 42.8 times this year's forecasted earnings and a 25% annual growth rate. The same is not true of J. Jill Group (NASDAQ:JILL), which will lose money this year and, with 24% annual growth, is priced at a very high 55.2 times projected 2006 earnings. The same goes for Ann Taylor Stores (NYSE:ANN), which is expected to grow more slowly at 15% annually but commands a 26.2 earnings multiple.
Coldwater Creek has momentum in its favor. Although it won't even come close to its multibagger performance over the past two and a half years, as long as margins don't falter, this fast-growing retailer looks poised to deliver excellent results for investors.
Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.
