On Wednesday, while I was writing about Retail Ventures'
Retail Ventures was originally created in 2003 as a holding company for DSW
It's hard to guess what Retail Ventures will take for the Value City business, but I hope the board will be flexible in its negotiations. Using Value City's 12-month-trailing sales of $1.4 billion and a price-to-sales multiple of .25, I estimate Value City's worth at $343 million plus debt. Assuming debt of $128 million, the enterprise value would be $460 million and priced at an enterprise-to-revenue multiple of .34. I'm not sure whether I included enough of a discount to its peers or enough debt, but if I were management, I'd probably settle for even less -- even if it means selling under the $450 million listed book value.
Regardless of my estimations, management should take what the market offers. Even though recent operating results show improvement, Value City is a drain on cash flow, with operating losses of $169 million over the past 12 months. Value City isn't equipped to compete with general discounters Wal-Mart
Even though I think the decision makes sense financially for Retail Ventures, I wouldn't touch the stock. You now have a public company that holds 63% of DSW and 30 Filene's Basement stores. It doesn't look like there's much of a future for the holding company even if the balance sheet were considerably healthier. As an investor, I'd suggest focusing on the less complicated story of DSW.
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