Poor Mom. She dresses us. She helps us grow. She prepares us for college. And this is how we thank her?
Maternity retailer Mothers Work (NASDAQ:MWRK) excels at all of these things, yet its stock still got slammed yesterday, shedding 15% of its value after a healthy quarterly report was weighed down by a lackluster outlook for fiscal 2007.
Let's get the good stuff out of the way first. The company saw its fiscal first-quarter profits grow more than eightfold, chiming in at $0.43 a share before a debt repurchase charge. That compares nicely to the $0.05 per share it earned a year earlier, as well as the $0.42-per-share showing that the company forecast earlier this month, and the $0.32 a share analysts predicted.
Unfortunately, the operating efficiencies blur the top-line struggle; sales dipped on a 2.1% slide in quarterly comps. That weakness has continued into January, and the company now expects to earn between $0.32 and $0.50 a share for the current quarter. Wall Street had hoped the retailer would earn $0.57 a share.
If you talk down guidance, you can expect to have ungrateful shareholders. I get that, but let me stick up for Mom here. Mothers Work is still the country's largest maternity apparel retailer. If you want to argue that you can buy maternity clothes anywhere these days, that's cool. Mothers Work can still get to you, even if you don't walk into one of its more than 800 stand-alone stores. The retailer has several leased locations inside many of Federated's (NYSE:FD) Macy's stores. It's also the exclusive maternity apparel provider for Kohl's (NYSE:KSS) and Sears (NASDAQ:SHLD). I'm a little skeptical of the company's decision to grow its superstore concept in such a specialized niche, but hey -- I know that when a pregnant woman goes shopping for clothes, she's buying a ton of stuff to see her through the next few months.
The company is also making the most of its market-leading position with its futuretrust program. In cahoots with MasterCard (NYSE:MA), the company markets futuretrust to shoppers as a way to link their credit cards with tax-advantaged 529 college savings plans. Talk about great timing. You're pregnant. You have an extra mouth to feed. Along comes Mothers Work with a free credit card offer, in which 1% of your charges go into a college savings account. Yes, Sallie Mae's (NYSE:SLM) Upromise may offer a more efficient approach in this space, but you can't fault Mothers Work for trying.
So why isn't Mothers Work getting any respect? The company aims to earn between $2.72 and $3.31 a share before debt buybacks and stock-based compensation charges. A forward-thinking retailer fetching between 11 and 13 times earnings? That's pretty darn cheap. Now we need the market to buy into that. Oh, how a Mothers Work is never done.
For more on retailers that moms might be interested in, check out:
- Dueling Fools: Bed Bath & Beyond
- Fool on the Street: Chico's Ready to Start Fresh
- Coach Bags Another Quarter
MasterCard is a Motley Fool Inside Value recommendation. To see our full list of Foolish bargains, click here for your free 30-day trial.
Longtime Fool contributor Rick Munarriz is a kid at heart. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
