Summary
A disappointing Q1 undercut the bull case for SSI - which still looks relatively weak longer term.
The continued focus on oil and gas markets ignores weakness in the rest of the chain, and the business model here is a clear target for disintermediation by online shopping.
Still, investors seem to like retail at the moment, and the Gordmans acquisition provides some interesting optionality.
I'm not convinced myself - but I'm surprised more investors haven't taken a flyer, especially as SSI has pulled back of late.
As bearish as I've been on Stage Stores (SSI) over the past few years, I'm surprised the stock hasn't performed better of late. There is some good news here. The acquisition of Gordmans out of bankruptcy moved the company into the currently hot 'off-price' channel, and early news on that front seems to be good. Oil patch stores - hit by the shale bust - are improving. Comps turned positive in Q4 before an admittedly disappointing (and weather-impacted) Q1.
And retail as a whole has caught a bid, which would seem an additional boost for SSI. Its heavy debt load was an anchor on the way from $20+ in early 2015 to below $2 early this year - but it also implies sharp potential upside to what is a small equity slice if EV/EBITDA or EV/revenue multiples move higher.
At a time when retail stocks with much weaker stories have posted pretty solid gains, SSI seems a bit left out, particularly with a ~25% decline from May highs. Admittedly, I'm not ready to turn positive just yet, for one key reason. But those more constructive on retail (or more credulous of the O&G story at SSI) might see it differently.
