With the excitement of earnings season all around, it's easy to overlook a good company that happens to participate on a different fiscal schedule. It's even easier to lose sight of a good company if the company makes its money by selling plastic trinkets for $4 a pop and has a relatively small, $2 billion market cap. If you haven't guessed by now, the overlooked company is Claire's Stores
Late last week, amid all the earnings releases, Claire's filed its 10-K with the SEC, and the company continues to look strong as teenage girls and young women scoop up its low-priced offerings by the handful. I'll circle back to some of the financial metrics, but since Claire's shares can often be had for a reasonable price and carry a near-2% dividend yield, let's talk about the business first.
It's really easy to underestimate a business like Claire's, but the company has a number of unique things going for it. There is no one true competitor to Claire's. Yes, Wal-Mart
The other large benefit of Claire's is its low cost of inventory, which enables Claire's to keep many units on hand but not tie up a lot of working capital. Even if the company messes up its inventory for a quarter or two it's not a dire predicament. A final small benefit is one that all retailers have in that they generally get paid in cash on the day of the sale or very shortly thereafter by credit card.
These three benefits lead us back to Claire's financials, which sparkle like few others. For starters, margins at Claire's have been up across the board -- gross, operating, and net margins -- each of the last three years. The company has a high, unleveraged return on equity and shows excellent working capital management, converting inventory to cash in just over a month.
Another way to measure Claire's working capital management is to pull out the old trusty Foolish Flow Ratio, and you'll find that Claire's carries a Foolish Flow Ratio of 1.0, which is stellar. The shares are reasonably priced as well with a trailing P/E of 14 and a forward P/E of 12.
As an investor the only thing not to like about Claire's is its dual-share structure and a poison pill in place of any attempted takeover. Remove these two unfriendly structures and Claire's is a glittering investment opportunity. Even with the dual-share structure Claire's is priced much like the wares it sells at the mall -- reasonably.
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Fool contributor Nathan Parmelee has no financial interest in any of the companies mentioned.