The retailer is a risky play after emerging from bankruptcy protection, but there are some points about its recent performance and outlook worth looking at
, which recently had been under court protection against its creditors, are down 33 per cent since its earnings release last Thursday. But while the retailer is no doubt a risky play for investors, the slide seems like an overreaction, especially given the large amount of cash on its books.
Reitmans emerged from bankruptcy protection in late 2021 and was the beneficiary of an agreement to pay off most liabilities at essentially 50 cents on the dollar. As a result, there are many moving parts in the financial statements that make year-over-year comparisons difficult, compounded by the fact that government-based COVID subsidies expired during the most recent financial year.
By other historical measures, Reitmans remains undervalued: Book value per share at year end was $5.34, there was no bank debt outstanding, and cash on the balance sheet totalled $103-million, or $2.11 a share. EBITDA, a broad measure of available cash flow, was $57-million, up from $39-million the previous year. Sales for the full year were up 21 per cent at $800-million and e-commerce sales made up 28 per cent of the total.
In late December, 2021, I wrote an article suggesting Reitmans could be a good buy as it emerged from CCAA with an improved balance sheet and a consolidated store count. The stock at the time traded around $1.70 and my target was 80 per cent of the prevailing book value of $3.14, or $2.50. The stock has traded well above that target price during the past 12 months and I did in fact sell part of my position.
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