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Margaret Moran
Margaret Moran
Articles (233) 

Chuck Royce's Firm Exits Stage on Stage Stores

Guru cuts holding in off-price retailer by 99.16%

February 11, 2020 | About:

Chuck Royce (Trades, Portfolio)’s firm, Royce Investment Partners, recently disclosed that it has decreased its stake in Stage Stores Inc. (SSI) by 99.16%, leaving only a small holding of 15,000 shares of the company in the equity portfolio.

Renamed from Royce & Associates at the end of 2019, Royce Investment Partners is the investment firm founded by Chuck Royce in 1972. The firm specializes in small-cap companies, which it chooses through a bottom-up, risk-conscious approach. The portfolio managers focus especially on quality and deep value. The firm’s equity portfolio is valued at $11.2 billion.

According to GuruFocus Real-Time Picks, a Premium feature, Royce sold 1,778,972 shares of the company on Jan. 31. The stock was trading around $1.12 per share at the time. GuruFocus estimates the firm has lost approximately 5.91% on the investment since it first bought shares in the second quarter of 2010.

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Stage Stores is an off-price retailer of brand name apparel, accessories and other goods. Headquartered in Houston, the chain store has 618 locations in the continental U.S. It hasn’t always been an off-price retailer; in fact, it didn’t enter the off-price segment of retail until it acquired Gordmans in 2017. After a brief period of testing, Stage Stores began a large-scale effort in 2019 to convert the rest of its stores to be similar in format to the 141 locations acquired from Gordmans.

After a spike in the share price at the end of 2019, driven by optimism on how the reorganization would increase holiday sales, the share price dropped 87.83% from the 52-week high on Jan. 7 following news that comparable store sales increased only 1.4% for the quarter ended Jan. 4, as opposed to 17.4% comparable store sales growth in the previous quarter.

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As of Feb. 11, Stage Stores has a market cap of $38.07 million, a price-book ratio of 0.22 and a quick ratio of 0.2. GuruFocus has assigned the company a financial strength rating of 2 out of 10 and a profitability rating of 5 out of 10.

The low financial strength rating is due to the amount of debt the company has taken on since beginning its reorganization efforts. The cash-debt ratio of 0.04 and equity-to-asset ratio of 0.14 are lower than 89% of competitors in the cyclical retail industry.

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On the profitability end, the company has seen fairly stable revenues, but net income has declined into the negatives since 2018, while return on capital has dropped to -8.61%.

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Portfolio composition

Royce’s equity portfolio consists of 1,136 holdings, most of which are small caps. In terms of sector weighting, the firm is most heavily invested in industrials, financial services and technology.

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The firm owns positions in several other cyclical retail companies, including Conn's Inc. (NASDAQ:CONN), Five Below Inc. (NASDAQ:FIVE), Bed Bath & Beyond Inc. (NASDAQ:BBBY), The Michaels Companies Inc. (NASDAQ:MIK) and Sothebys (NYSE:BID).

Disclosure: Author owns no shares in any of the stocks mentioned.

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