Goody's Family Clothing
Six months ago, when last I checked in on Goody's, the company was far from a superstar stock -- but it did have some attributes that my inner value hunter found appealing. First and foremost, Goody's was swimming in cash: $108 million worth. Even better, Goody's was generating additional cash at a fast clip; its cash level had run up by more than $16 million since the previous year's second quarter.
Three months later, however, the value story began changing for the worse. My Foolish colleague, Marko Djuranovic, observed that Goody's third-quarter earnings release had the company still swimming in cash -- but at a much shallower level. Cash in the bank had fallen to just $67 million by November. Worse, it appears that someone pulled the plug and cash had begun flowing outward at a truly frightening rate. Cash generated from operations through the first three quarters of 2004 totaled a negative $27 million. Then the company spent another $25 million on capital expenditures, resulting in negative free cash flow of well over $50 million in just nine months.
What we'll be looking for tomorrow, therefore, is pretty clear: some evidence that Goody's has managed to stop the flood of cash leaving its coffers. I don't expect we'll be seeing that on the cap ex front, as Goody's is continuing to build out its store count. The company announced earlier this month that it is in the process of opening four new stores and relocating two others. That's probably essential if its business is going to grow, considering that the comparable sales reported for February were negative again. But it won't be doing any good for Goody's cash reserves. Investors can only hope against hope that the company managed to generate enough cash from operations in the holiday quarter to reverse the earlier cash outflows, offset store build-out costs, and put Goody's back in the black for the year.
Fool contributor Rich Smith has no position, long or short, in Goody's.