Credit crisis? Financial sector meltdown? Not for Robert Rodriguez. He has foreseen the problems long before anyone else and has been avoiding financials. What does he think now? Recession in 2008! These are his buys and sells during the 4 th quarter of 2007.
Robert Rodriguez buys Zale Corp., Charming Shoppes Inc., Circuit City Stores Inc., Foot Locker Inc. during the 3-months ended 12/31/2007, according to the most recent report of his mutual fund, FPA Capital Fund. Robert Rodriguez owns 26 stocks with a total value of $1.1 billion. These are the details of the buys and sells.
Added: Zale Corp. (ZLC)
Robert Rodriguez added to his holdings in Specialty Retailers Zale Corp. by 24.32%. His purchase prices were between $15.66 and $23.99, with an estimated average price of $19.4. The impact to his portfolio due to this purchase was 0.62%. His holdings were 2,205,000 shares as of 12/31/2007.
Zale Corporation operates as a specialty retailer of fine jewelry. The company operates in three segments: Fine Jewelry, Kiosk Jewelry, and All Other. The Fine Jewelry segment operates under six brands. Zale Corp. has a market cap of $640.08 million; its shares were traded at around $14.78 with P/E ratio of 12.33 and P/S ratio of 0.27.
Added: Charming Shoppes Inc. (CHRS)
Robert Rodriguez added to his holdings in Apparel Retailers Charming Shoppes Inc. by 19.05%. His purchase prices were between $5.03 and $8.15, with an estimated average price of $6.3. The impact to his portfolio due to this purchase was 0.58%. His holdings were 7,500,000 shares as of 12/31/2007.
Charming Shoppes, Inc. operates as a specialty apparel retailer for women's plus-size specialty apparel in the United States. It operates retail stores and related e-commerce Web sites through the brands: LANE BRYANT, FASHION BUG, CATHERINES PLUS etc. Charming Shoppes Inc. has a market cap of $525.12 million; its shares were traded at around $4.5 with P/E ratio of 8.74 and P/S ratio of 0.17.
Added: Circuit City Stores Inc. (CC)
Robert Rodriguez added to his holdings in Specialty Retailers Circuit City Stores Inc. by 25.59%. His purchase prices were between $4.15 and $8.97, with an estimated average price of $6.7. The impact to his portfolio due to this purchase was 0.37%. His holdings were 4,860,000 shares as of 12/31/2007.
Circuit City Stores, Inc. operates as a specialty retailer of consumer electronics, home office products, entertainment software, and related services. Circuit City Stores Inc. has a market cap of $641.52 million; its shares were traded at around $3.83 with P/S ratio of 0.05. The dividend yield of Circuit City Stores Inc. stocks is 4.1%.
Regarding his purchase of Circuit City, Robert Rodriguez wrote in his last quarter shareholder letter:
During the third quarter, we initiated a new position in Circuit City (CC). We started buying the stock near $13 a share and purchased more as the stock declined to roughly $8 a share. We have purchased approximately a half position and are waiting to see how operational changes begin to impact the company. Circuit City is the second largest independent, consumer electronic retailer in the United States. The company operates roughly 650 super stores in the U.S., averaging approximately 25,000 square feet in size, which produce annual sales of over $11 billion. The company also has 800 smaller stores in Canada, each with approximately 2,000 square feet, which generate approximately $500 million of annual sales. The core U.S. stores sell audio, video, and home office products, entertainment software, and related installation and services.
We have been following Circuit City for many years, but until recently the company did not possess a management team strong enough to inspire our confidence that it could lead the company to achieve its profit potential. However, in 2006, the Board of Directors replaced the former CEO, who we believed was very ineffectual, and elevated Phil Schoonover from the President’s role to the CEO position. Prior to Schoonover’s joining the firm in 2004, he was with Best Buy for roughly a decade and helped turn around that retailer in the mid to late 1990s. We expect Schoonover, and the new executives he has brought in over the last couple of years, to transform Circuit City from a tired consumer electronics retailer into a modern, more efficient retailer that provides its customers with a better in-store experience than in the recent past.
Over the last couple of years, the new management team has started to roll out all new information technology systems to better manage merchandise, stores and labor. These new systems should all be operational by the end of next year. New standard operating procedures and districtlevel management directives were recently installed. Next year, the company says it will complete the roll-out of a new Point-of-Sale (POS) system for all 650 U.S. stores. These new systems will allow store personnel to more rapidly check out customers, management to better schedule labor hours, and integrate with the new merchandise systems to more accurately tailor in-store inventory for a given geographic area, based on demographics, sales history, and other data.
All of these changes have not been easy for the company and the disruption to the stores has been greater than we anticipated. Recent sales have not met expectations; however, by the fourth quarter of its fiscal year ending February 2008, Circuit City should start to experience a meaningful pick-up from the weak results experienced earlier this year. Obviously, we are monitoring the turnaround very closely, but we agree that many of the changes management has implemented were required for the company to achieve better returns on capital.
Our profit expectations are below management’s guidance, yet very realistic. Circuit City’s management has publicly stated that they believe they can increase the company’s operating margin from 1.5% to 5% over the next few years. For comparison, Best Buy has achieved operating margins greater than 5% each of the last four years. Our expectations are more conservative. We believe that Circuit City could achieve a 3% operating margin level within the next few years. If we assume a small measure of revenue growth, we would not be surprised to see the company earning approximately $1.50 of EPS sometime within the next three to five years. In the meantime, Circuit City has over $2 per share of net cash on balance sheet, and has the ability to generate at least another $3 per share of cash through better working capital management while having a market capitalization that is at a very depressed 13% of sales.
Added: Foot Locker Inc. (FL)
Robert Rodriguez added to his holdings in Apparel Retailers Foot Locker Inc. by 8.28%. His purchase prices were between $12.76 and $15.41, with an estimated average price of $13.8. The impact to his portfolio due to this purchase was 0.29%. His holdings were 3,047,400 shares as of 12/31/2007.
Foot Locker, Inc., through its subsidiaries, operates as a retailer of athletic footwear and apparel. The company operates in two segments, Athletic Stores and Direct-to-Customers. Foot Locker Inc. has a market cap of $1.83 billion; its shares were traded at around $11.61 with P/E ratio of 23.26 and P/S ratio of 0.32. The dividend yield of Foot Locker Inc. stocks is 4.1%.
Robert Rodriguez initiated holdings in SIGNET GROUP PLC. The impact to his portfolio due to this purchase was 3.55%. His holdings were 28,703,100 shares as of 12/31/2007.
Reduced: Thor Industries Inc. (THO)
Robert Rodriguez reduced to his holdings in Recreational Products producer Thor Industries Inc. by 33.21%. His sale prices were between $35.18 and $51.34, with an estimated average price of $41.3. The impact to his portfolio due to this sale was 1.25%. Robert Rodriguez still held 486,800 shares as of 12/31/2007.
Thor Industries, Inc., together with its subsidiaries, manufactures and sells recreation vehicles, and small and mid-size buses, as well as related parts and accessories in the United States and Canada. Thor Industries Inc. has a market cap of $1.81 billion; its shares were traded at around $32.34 with P/E ratio of 12.75 and P/S ratio of 0.62. The dividend yield of Thor Industries Inc. stocks is 0.8%.