Zumiez (NAS:ZUMZ) — mrkt cap $312mm; Price $15.94; trailing P/E 14
STARTER POSITION INITIATED. We have taken a position in this name and are looking to make this a core holding. Zumiez is an in-mall retailer with ~600 stores in the United States. They sell edgy apparel to the 14-24 y/o demographic (think streetwear merged with something like a Hot Topic). They have relationships with ~500 brands–many of them micro brands. People go to Zumiez because they have access to brands they cannot find anywhere else. The on-screen P/E multiple is ~14 but this is off a low revenue year and we calculate normalized cash flow in the range of 30-40mm. After netting out cash, ZUMZ is trading at ~4x normalized free cash flow. This company has over 44 years of successful operations, has zero leverage and is well managed. In fact, we think this is one of the best run retailers in the world.
Lee Enterprises (NAS:LEE) — mrkt cap $77mm; Price $12.37; trailing P/E NA
PASS. LEE is the 2nd largest owner of local newspapers in the USA. LEE is engaged in digitizing their offerings along with creating an aggregated ad platform. Lee generates about $700mm per year and operates about break even however revenues are declining at ~5% per year. Local newspapers are being squeezed from both ends; from people’s attention becoming more globalized along with the emergence of hyper-localized platforms like Nextdoor. Gauging future appetite for local news is difficult and given their 500mm of debt, the margin for error is low. We are passing.
OneWater Marine (NAS:ONEW) — mrkt cap $438mm; Price $27.76; trailing P/E 7
MORE RESEARCH NEEDED. OneWater Marine is consolidating the marine dealership space and owns about 100 dealerships nationwide. The vast majority of marine dealerships are mom and pops. New boat sales make up 70% of ONEW revenues and are its highest margin business followed by services and parts. Management’s capital allocation decisions are questionable given aggressive acquisitions financed by shareholder dilutions (by over 30% last two years) and ~700mm in debt. Despite this, ONEW could be an interesting candidate given the fragmented nature of dealerships and the possible synergies in rolling them up. We will be speaking with management next week to learn more.