Description

S & K Famous Brands is a micro cap company that is value priced men's retailer operating over 230 stores in 27 states on East Coast thru Texas. Serving the mid market(cities of 1/2 million or so),S&K sells a complete line of men's brand name apparel generally priced at 20/40% below department store prices. Brand names include Ralph Lauren,Jones New York,Perry Ellis,Bill Blass,Oleg Cassini,Albert Nippon among others. Exclusive private labels include Tailors Row,Fenzia,Roberto Villini,Kilburne & Finch etc. Recently the company set up a partnership with Amazon.com to sell its goods thru a specialty internet store. Initial results were reported as very positive. The company in 2002 tendered about 1.5 million of it shares at $11 creating long term debt of about $17 million which has been paid down rather quickly to $8.8 million as of May 3 with an interest rate of LIBOR. Currently there are about 2.5 million shares outstanding. A new president arrived in March 2002 and soon purchased approximately 80,000 shares last summer in the $11 area. More recently a director added 9000 shares in the April-May period. The balance sheet is fine with a book value over $18.00 and a current ratio of 2.52 to 1. Earnings for the first quarter of 2003/04 fiscal was 0.63 vs 0.38 mailnly because of lowered share count with trailing 12 months of $1.12 on new share count. Sales for the quarter were $42.2 vs $41.8. At this point management is opening 5/10 new stores pending a continuation of recent sales which have abruptly expanded. After having increased comps over past year at about 1%, May saw a 6% increase with June jumping to 11% comp store sales. The industry group appears to have turned of late with Mens Wharehouse and Jos Banks showing 7% and 15% June comp store sales increases. Should comp increases of 4/5% prevail over the near future, one can envision a ramp of the current store openings from 5/10 to a more robust number. Over 2 years ago Wildreck of Jos Banks outlined a potentially similar program of 20+ stores expansion annually over a three year period with the stock at $4 and also with zero analyst coverage at the time. Our sales estimate for the 2/1/2004 year is $180 compared to $162 million with an eps of $1.60 vs $1.35 on the reduced shares using a 5% comp store increase. The first qtr ended May 3 showed sales of $42.2 vs $41.8 and eps of $0.63 vs $0.58. Again thess are pro forma. Original as reported was $.63 vs .38(higher share count). Best guess for 2004/05 year $190 million revs and $1.90 eps. With multiples in field at 20+ (JOSB AND MW) one could expect good appreciation potential. $

Catalyst

1.Discovery of undervalued men's retailer on the cusp of a potential earnings expansion.
2.An industry whose time has come.
3.Low p/e the result of self tender and new robust comp store growth which should lead shortly to an expanded new store expansion.