A Canadian on Wall Street

Having once been a happy, well-rewarded investor in LaSenza at one time (that purchase mostly predicated on the fact that I couldn’t go out in public without seeing a woman toting the ubiquitous bags), I still keep an eye on the clothing retail sector in Canada, as finicky as fashion can often be. Here are some of the stocks that I’ve taken a look at in the recent past:

Reitmans - RET.A:

A well-run, strong contender in the younger and middle-age market, I actually put some money into this for a little recently until I realized that it was probably pretty well valued for a fashion retail stock, sporting a P/E in the high teens. (I have a bad habit of buying stocks before I’ve done due diligence, a habit that hasn’t always hurt me but which I’m trying to avoid as I get older and, hopefully, wiser.) According to their last public set of financial statements, they currently have 358 Reitmans, 164 Smart Set, 39 RW&CO., 70 Thyme Maternity, 156 Penningtons, 124 Addition Elle and 8 Cassis stores, many of which came with the purchase of Quebec-based Shirmax in 2002. Not being a woman, I’m not as hooked into the quality of the stores, but I suspect Reitmans still holds major cachet with middle to older-aged women, while I’ve been seeing ridiculous numbers of RW&CO bags around as an anecdotal data point. Cassis is Reitman’s attempt to capture the elderly set, due probably due to the aging of the boomer population, though I have yet to hear about it in casual conversation. I like this stock, but would probably wait till some adverse event took it down a peg before I’d reconsider my pull-out from the stock earlier.

Le Chateau - CTU.A:

A mainstay of the Canadian fashion scene since I was a kid, the stock has been pretty lumpy, although it looks like in the past few months it took off, perhaps due to speculation about a sale of the company. They recently reported record sales with same-store sales up in the double digit percentages for the last quarter and during the Christmas season when compared to last year. That said, it looks like the founder, Herschel Segal, is selling off his stake in the company, just after the company decided not to sell itself off. This looks kind of suspicious to me — it reminds me a little of the attempts by IMAX to look for a buyer only to come up short. I avoided the stock when I looked at it last fall, and missed out on a nice short-term gain, but in the long run I’m not a huge fan of this company and I’m unsure whether it would sell at a real premium to the current price.

West 49 - WXX

I see these stores in malls across Canada, and in Vancouver the Off the Wall chain which they purchased seems to have some presence — with a noticeable store near the downtown CTV headquarters and HMV store on Burrard Street — but I’ve never got the impression of a high quality chain, and the success and numbers of the company bear that up. With a tiny market cap, lumpy earnings and cashflow and a bizarre, multi-brand strategy for such a small company:

During the quarter, the Company opened seven new stores: two West 49 stores in St. Laurent Shopping Centre in Ottawa, Ontario and Kildonan Place in Winnipeg, Manitoba; two Off the Wall stores in Upper Canada Mall in Newmarket, Ontario and Limeridge Mall in Hamilton, Ontario; one Amnesia store in Carrefour Laval, Quebec; one D-Tox store in Upper Canada Mall in Newmarket, Ontario; and one Duke’s Northshore store in the Georgian Mall in Barrie, Ontario. At October 28, 2006, the Company operated 125 stores in nine provinces under seven banners and an online retailer, as compared to 77 stores under three banners a year earlier. (taken from the

…I can understand why this stock has barely grown in the past 5-6 years its been public. Interesting to note that this company used to be Jumbo Video/Microplay, until 2004 (as noted in their financial report from the first half of 2004), when the assets were sold to Superclub Videotron/Quebecor and the corporation bought up the assets of West 49 — a quick way to get listed, I guess. Jumbo Video never really did that well versus the now-weakened Blockbuster, but Microplay was and is a well known name to the Canadian video gamer. Not the greatest pedigree, I think, and another stock I’d probably stay away from unless you wanted to play “trader” with it; it’s micro cap and low liquidity might have helped contribute to its minor spike up in mid-to-late 2005.

Danier Leather - DL

Back in 2000, when I worked for a time at IBM, Danier was one of the clients in my division, headquartered in a nondescript part of midtown Toronto. It wasn’t fancy, but they seemed to be doing well enough, and they were earnestly going about developing their online presence using old school C++ based Websphere. Nowadays, it appears they’ve given up that initiative, likely due to the cost and logistics required to properly implement a good online commerce system, and this company has the luck to be in a sector of the fashion industry that is severely beaten down but showing very few signs of returning. As a retailer focused very specifically on leather, this company reminds me now of a larger, relatively more successful version of Acton, Ontario’s most famous company (”The Old Hyde House — it’s worth the drive to Acton!”) and it seems sort of bizarre now to continue in that industry without some serious attempts to cross over into something that, well, doesn’t involve dead animal skins. I wouldn’t touch this stock unless there was a major initiative to push into something besides leather, although they don’t have the cashflow or the borrowing power to make any real moves, from the looks of it. That said, fashion like fad can shift at any time, and if Danier were smart they would be pushing into the world of hip hop, where furriers like Erving Rosenfeld are doing very well supplying its bling-sporting denizens. It’s one of the few areas where ethical concerns about clothing haven’t really yet made an impact.