Destination Maternity (DEST, Financial) is the largest manufacturer of maternity clothing in the world. The stock has languished with many other retailers, including two of its distributors, Macy’s (M, Financial) and Sears (SHLD, Financial).
In December, the company merged with Orchestra Premium. I got the idea to write on the company by looking at Fairfax Financial (FRFHF, Financial) and Prem Watsa (Trades, Portfolio)’s holdings on GuruFocus. According to GuruFocus, Fairfax owns 70,000 shares.
The company has 14 million shares, and the stock trades for $4.28. The market cap is $59.92. The stock pays no dividend. The company lost $1.5 million in the latest fiscal year.
Trailing 12-month revenue is $452 million. Sales were $499 million in 2015, $517 million in 2014 and $543 million in 2013. You can see why the stock has gotten crushed. The balance sheet shows $2.7 million in cash, $20.5 million in accounts receivables, $47.6 million in payables and $47 million in debt.
The company merged with French-based Orchestra Premiman at the end of 2016. The combined entity should have sales north of $1.1 billion. Cost savings are expected to be $15 million to $20 million a year. Orchestra operates 588 stores with 65% located in France and 35% internationally. Orchestra has been profitable and growing sales. It made $503 million in sales in 2014 and $589 million in 2015.
Destination is the world’s largest manufacturer of maternity apparel. It has 1,227 retail locations in the U.S., Canada, Puerto Rico and England. It operates under the names Pea in the Pod, Motherhood Maternity and Destination Maternity. It also operates departments at buy buy Baby, Macy's and Boscov’s. As of the last annual report, the Destination was the exclusive provider of maternity wear to Kohl’s (KSS, Financial).
As of the last Annual Report, the company operated at: 555 locations at Macy’s, 457 Sears, 103 at buy buy Baby, 100 Gordmans, 44 at Bocov’s and a few other stores. You can see the problem here. Sears and Macy’s are struggling and closing stores. The company closed a 48,000-square-foot retail location in Philadelphia. Pea in the Pod does sell on Amazon.
Pea in the Pod has several high-end designers such as 7 for All Mankind and BCBG. Dresses sell for $150 and above. Swimsuits sell for around $50. Motherhood Maternity sells bras, pants, jackets, shirts and other clothing under its own name.
The New Yorker just wrote a piece on how Macy’s has been having a one-day sale for 23 years. Its bonds are trading at 80 cents to 90 cents on the dollar. The New York Times just wrote an article on how poorly Sears and Edward Lampert have been doing. No doubt, these companies are struggling against Amazon, online sales and other retailers.
The stock is cheap. It trades at 0.13 of sales. In November 2013 the stock traded at over $30 per share. Since then it’s been a downhill struggle. I wouldn’t buy the stock. It’s on a downward trajectory. It’s tough to turn retailers around, almost impossible. It could be for bottom feeders at the right price. It looks like Watsa was doing a little bottom feeding.
Disclosure:Â We do not own shares.
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