We analyzed JOSB in the previous article. The stock plunged 29% today after the company's earnings declined compared to the year ago period. The company sales increased by 18% but the increase in operating costs ate up the earnings this quarter.
In this segment, we will take a look at JOSB to see how the balance sheet looks like and see if it is buy at current prices. The company has a book value of 9.3 dollars. The cash flow from operating activities declined along with the cash at hand. The book value increased by 11% which is not spectacular but decent. The number of shares outstanding increased by 2.5%. Gross profit declined slightly by about a couple of points. Operating expenses increased significantly, especially the sales, general and administrative costs.
The 10-Q details the reason for the fumble in the quarter:
For the first quarter of the Company’s fiscal 2006, the Company’s net income was $5.9 million compared with net income of $6.7 million for the first quarter of the Company’s fiscal 2005. The Company earned $0.32 per diluted share in the first quarter of fiscal 2006 compared with $0.38 per diluted share in the first quarter of fiscal 2005. As such, diluted earnings per share decreased 16% as compared with the prior year period. The results of the first quarter of fiscal 2006 were primarily driven by: 17.7% increase in net sales with increases in both the Stores and Direct Marketing (catalog and Internet) segments;
140 basis point decrease in gross profit margins;
70 basis point increase in store employee payroll as a percentage of net sales;
$3.0 million increase in general and administrative expenses related to higher employee compensation and benefits (including medical costs) and professional fees; and
The opening of 57 new stores since the end of the first quarter of fiscal 2005.
The decreased earnings in the first quarter of fiscal 2006 follow an increase of 27% in earnings per share in the first quarter of fiscal 2005, as compared with the first quarter of the fiscal year ended January 29, 2005 (“fiscal 2004”).
Management believes that the chain can grow to approximately 500 stores from the fiscal 2005 year-end base of 324 stores. The Company plans to open at least 50 stores in fiscal 2006 as part of its plan to grow the chain to the 500 store level, including seven stores opened in the first quarter of fiscal 2006. The store growth is part of a strategic plan the Company initiated in the year ended February 3, 2001 (“fiscal 2000”). In the past six years, the Company has continued to increase its number of stores as infrastructure and performance has improved. As such, there were 10 new stores opened in fiscal 2000 (including two factory stores), 21 new stores opened in the year ended February 2, 2002, 25 new stores opened in the year ended February 1, 2003, 50 new stores opened in the year ended January 31, 2004, 60 new stores opened in fiscal 2004 and 56 new stores opened in fiscal 2005.
Capital expenditures are expected to be approximately $25 – $30 million in fiscal 2006, primarily to fund the opening of at least 50 new stores, the renovation and/or relocation of several stores and the implementation of various systems initiatives. The capital expenditures include the cost of the construction of leasehold improvements, fixtures and equipment for new stores of which approximately $8 – $10 million is expected to be reimbursed through landlord contributions. The Company also expects inventories to increase in fiscal 2006 to support new store openings, sales growth in existing segments and other initiatives.
JOSB is a growth story. Even after today's correction, the company is a growth story. The forward P/E is comparable to this years P/E. The company is not a value play yet and is not cheap enough.