August 01, 2011 - 7:10pm EST by
2011 2012
Price: 4.21 EPS $0.26 $0.35
Shares Out. (in M): 48 P/E 16.1x 12.0x
Market Cap (in $M): 202 P/FCF 5.4x 5.1x
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0.0x 0.0x

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   Twenty years ago, anyone not able to find clothes at standard retailers were labeled as "big and tall". This group of buyers had mostly been serviced by mom and pop stores and only considered as an afterthought by the big retailers. One company, Casual Male Retail Group, decided to focus on this group and by 2002 became the largest chain in the US to service this segment.


   Obesity is described as a person 40 pounds or more overweight. Estimates are that currently one-third of American men are obese. This is a market of approximately 36 million people. Casual Male (CMRG) has acquired about 7% of this nearly $6 billion segment, operating 460 stores throughout the U.S.

Casual Male stores have great selections in apparel and accessories including suits, casual wear, belts, socks, shoes, belts, and undergarments. The goal has always been to be a one-stop shop for their clientele.

History has shown that about 80% of sales are for casual clothing and the balance for more formal apparel such as suits and ties.


   In 2009, CMRG was analyzing its operations and trying to find ways to consolidate operations and cut non-profitable sectors. While reconsidering its Rochester stores, management researched and created a new concept store that it has run with. Where most CMRG stores offer lower prices in a typical 3200 square foot sized store, this new concept store, named Destination XL (DXL), offered good, better, best pricing of products in a large 8000- 12000 square foot store. These stores carry over 1400 more items then the typical store and offer buyers more apparel and accessory choices. The huge inventory in these stores created a "destination" for purchasers and enabled CMRG to close some of the less productive surrounding stores. DXL carries a very wide variety of sizes and brands from value-priced apparel to high-end luxury brands, including private labels to well-known designer brands such as Calvin Klein, Tommy Bahama, Polo Ralph Lauren and Cole Haan.


    What Casual Male management has found is that consumers are willing to travel further, knowing that they will find all their clothing needs in one location and done in a big way. There is no feeling of "second class" in these cutting edge stores.


    Common in these new stores are wider aisles, high ceilings, hardwood floors, and larger dressing rooms. Customer reaction to the concept stores has been excellent. DXL stores show increased sales of 20% over its predecessor stores in each market area one has opened.  CMRG also will launch a web channel in the Fall, providing a very similar customer experience as in the retail channel.


   There are currently six of these stores opened. Management plans to open 14- 15 stores in 2011, 50  locations by late 2012 and a total of 75- 100 by 2015. As this format rollouts and traditional stores are closed, the company will have fewer stores but offer more product and more selling square feet. These new stores should also attract the end of rack guy, waist size 40-44 inches, which already accounts for one -fifth off sales.


    CMRG reported 1Q EPS of .09 versus a consensus estimate of 0.11. Total comp store sales increased 2.2%. Management indicated this was below estimates due to adverse weather that impacted some stores by an estimated 1.5%. Even with slightly lower traffic, sales per transaction were higher. The company is debt free now, using its cash flow to fund its expansion-conversion program.     


     Earning estimates of $0.41 untaxed for 2011 (using a 35% tax rate we get ($0.26) with a go forward

fiscal 2012 estimate of $0.35.


      So what has us excited about this retailer. Well first, it owns this space with a first-mover advantage.

Americans are not losing weight nor will anytime soon. The field catering to the "big guys" is highly fragmented. They have paid down long-term debt at its peak of $150 million to zero. Free cash flow is about $35-40 million and capex levels running at $20 million for the DXL expansion. Sales per square foot range from $250-300 for DXL stores compared to $150 for the CMXL stores. The four-wall margins approximate 25-30%. They are closing three smaller stores for each new DXL superstore opened, eliminating several store managers, rental expenses and other redundancies. Margins improve and the customers have shown they will drive the extra distance to get a dramatically expanded product selection in one store catering to them.


1.Expanding conversion from smaller stores to large destination stores.
2.Street discovery of this retail segment.
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