The combination of a quick return on my initial investment and a rapidly deteriorating industry outlook prompts me to beat a hasty retreat.
On Second Thought…
Not usually my style, but I did an about-face this morning and cashed in my chips on G-III Apparel. I suspect Future Me is going to be cursing and shaking his fist at Present Me. At the current share price of $8.70, I’m selling this company for 2.6 times last year’s earnings and a p:b ratio of 0.3. Those are crazy low numbers and suggest that this company is on death’s doorstep. I don’t think it is. But I’m not sure I can say the same for the industry it operates in.
The picture for department store retail is looking pretty dire. When I bought G-III a mere 3 weeks ago, I think I may have underestimated just how bad things were about to get for the department stores. The past few weeks have seen a steady trickle of gloomy forecasts for the sector. This morning, JC Penney, Nordstrom and Neiman Marcus were all mentioned as being candidates for possible bankruptcy filings this year. And G-III’s biggest customer, Macy’s, got an honourable mention as well, although I think their financial position is stronger and the immediate risk there is less.
If this was my only retail holding, I’d be sorely tempted to tough it out. Once the dust settles, G-III could still be in decent shape. They are going into this thing with a fairly strong financial position and should be able to bull their way through the worst of it. But what will the company and the industry look like on the other side of this? There’s really no way of knowing. The market has offered me a quick and sizable return on my investment. I’m going to take the cash and wait to see how things shake out.
We’re entering in to Q1 earnings season and it is going to be very interesting and informative to see who the initial winners and losers of this economic implosion are going to be. Hopefully, it’ll give us a better idea of who exactly is swimming naked. The sale of G-III gives me some cash to play around with as I look for a potential replacement.
Full Disclosure: I do not own shares in G-III Apparel.