For all the talk about how last year's holiday season generally disappointed, at least one retailer seems to have done OK. Discount clothier Syms
Granted, quarterly sales were down 2.6% year over year, and same-store sales in particular declined 1.5%, both showing declines versus the year-to-date results of negative 1% and negative 0.2%, respectively. But thanks to significant reductions in operating costs -- primarily in advertising and selling, general, and administrative expenses -- the company managed to turn in a striking 75% improvement in per-share profits. The year-to-date results here, too, were better, but for a different reason. Thanks to a $10.4 million pre-tax gain on the sale of real estate in Q1, profits for the year so far hit $0.44, versus $0.07 last year.
Moreover, the company improved its working-capital situation, reducing accounts receivable a good 18% and inventories nearly 4% -- both declines greater than the slip in sales.
But where's the cash?
So far, so good. And if you limit yourself to reading the company's earnings press release, so good, period -- because for whatever reason, Syms declined to provide its investors with a copy of its cash flow statement in the earnings release. And I say "for whatever reason" for good reason: Syms had the cash flow information right at hand, as evidenced by the fact that no sooner than had it issued its press release, it filed its quarterly 10-Q with the SEC -- cash flow statement and all.
Turn to that document, and the profits picture looks quite a bit different at Syms. In contrast to the strong GAAP "accounting profits," the cash flow statement shows that actual cash profits have been surprisingly weak this year. Whereas by this time last year, Syms had generated $9.9 million in free cash flow, so far this year it has managed to come up with only $0.2 million -- excluding the profits from the sale of real estate, which actually boosted cash levels considerably.
With the company's store count having decreased by one (to 36, total) over the past nine months, it doesn't appear that expansion capital expenditures are to blame for Syms' declining cash generation. This is a problem with cash profits, plain and simple. The earnings release suggests they're abundant; the 10-Q proves they aren't. If you've ever wondered whether it's really necessary to read a company's SEC filings when "everything you need to know" is already in the press release, here's a good example of why, yes, it is necessary.
For more on other discount clothiers, check out:
- Why is TJX
- What's up with margins at Ross Stores
- Which direction is Stein Mart
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Fool contributor Rich Smith does not own shares of any company named above.