Like low-margin, money-losing businesses in slow-growth industries? Have we got a stock for you: Pathmark Stores (NASDAQ:PTMK) reports Q4 and full-year 2005 earnings tomorrow.
What analysts say:
- Buy, Sell, or Waffle? Only three analysts follow Pathmark. Two say buy, and the last one says hold.
- Revenues. Analysts expect tomorrow's quarterly sales numbers to edge out last year's by slightly more than 1%. $1.01 billion is the target.
- Earnings. Profits are due for a 75% fall, down to $0.02 a stub.
What management says:
It's no secret that Pathmark has been going through a rough patch lately. Addressing investor concerns in the last earnings release, CEO John Standley asserted that: "Pathmark made significant progress in the quarter . expanded our perishable selections, introduced new merchandise categories such as party goods, kitchen items, dollar merchandise, and toys, and improved the appearance of our stores both inside and out.. Additionally, we continue to evaluate and challenge all elements of our business to improve operating performance."
What management does:
"Significant progress?" Not that I can see. Over the past 18 months, Pathmark has held its rolling gross margin steady -- and kudos for that. Operating margins continue to sag, however; selling, general, and administrative expenses keep rising, even as sales stagnate. I grant that this isn't unexpected, as the firm invests in improving the appearance of its stores. And perhaps six months isn't enough time to begin seeing results from the company's improvement campaign. Even with those caveats, though, the trend just plain looks depressing.
|
Margins % |
7/04 |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
|---|---|---|---|---|---|---|
|
Gross |
28.4 |
28.4 |
28.5 |
28.5 |
28.6 |
28.5 |
|
Op. |
2 |
1.8 |
1.5 |
1.4 |
1.3 |
0.9 |
|
Net |
0.2 |
0.1 |
(7.8) |
(7.7) |
(7.8) |
(8.2) |
One Fool says:
Reviewing Pathmark's Q3 report back in November, my fellow Fool Shannon Zimmerman (the force behind one of the Fool's most successful newsletters, Champion Funds) highlighted Pathmark's continued free cash flow as one of the few bright lights still shining within the store. However, Shannon also pointed out that the revived free cash flow was mainly due to a reduction in expenditures at Pathmark -- a trend that is now certifiably dead. In fact, year to date, the company has already burned through $34 million in free cash flow (according to Capital IQ). For the duration of the store-remodeling project, expect that trend to continue as well.
Competitors:
- Kroger (NYSE:KR)
- Safeway (NYSE:SWY)
- Whole Foods Market (NASDAQ:WFMI)
Whole Foods is a Motley Fool Stock Advisor pick .
Fool contributor Rich Smith does not own shares of any company named above.
