CLWY - Calloway's Nursery

[porcupine]

Yea I agree for the most part. The timing is definitely uncertain for when he will exit. I think that the more liquidity he draws, the better the price he will get... especially because this stock is so thinly traded. So I think he has an incentive to try and draw the most liquidity possible.

[brycepeterson]

2Q18 was better than I anticipated on sales & GM.  The GM's in 1Q18 & 2Q18 are consistently better vs. '17.  I wonder why?  Perhaps the "plant it for me" business is adding a bit?  Seems like that would be high margin?

 

Question:  What makes you think 3K will sell-out? 

 

Strategically, at $4 million to $5 million FCF per year, it's in great shape.  Generating enough cash to open a new location when desired; buyback a large amount of stock each year (tender offer, or buy slowly in open market); and/or pay large dvd to yourself; pay-down debt. 

 

If I were them, given where the stock price is ($8 / share, $54.2 million EV), and $4 million to $5 million FCF per year (call it 7.5% to 9% FCF yield on EV - which is huge in current market), I'd do a tender somewhere in the $8 to $9 range and draw-out the weak hands.  See how that plays-out and then evaluate.  Even is they don't get much selling, worst case, they own more of the biz & collect the annual FCF. 

 

If Calloway's was trading in the 5% to 6.5% FCF/EV range, I'd be more tempted to sell-out ($11-$12.50 per share).

 

Thanks all,

 

Bryce

[mbrock77]

Stock is up 30%? Some news besides earnings, or is this just sloppy trading?

[brycepeterson]

I don't see any news.

[DTEJD1997]

hey all:

 

CLWY appears to be moving up in price again.

 

Bid is $8.50, ask is $9.

 

No apparent news.

 

I will be anxious to see if there is another dividend declared this year.

 

Anybody know anything?

[brycepeterson]

DT,

 

No news I know of. 

 

It's thinly traded lately, so when it went down to $7.90 I figure minor seller at market, then up to $8.50, same thing.

 

It's so cheap here on FCF to EV basis that it will go higher given time.  I wish 3K would do a mini-tender and draw-out the weak hands or owners who desire liquidity to get out...increase our ownership.  Could offer $8-$8.25/share, buy up to $5 million worth.  We'll see.

 

Bryce

[porcupine]

Q3 results posted.

[brycepeterson]

On track for $4.5 million FCF in 2018.  8% FCF yield on Enterprise Value of $57.2 million.

[mbrock77]

I think that might be optimistic? I have them at $3mm through Q3 and FCF is usually flat for them in Q4.

[brycepeterson]

If you take out working capital swings (seasonal positive or negative), FCF YTD about $4.8 million ($1.5, $4.7, -$1.4).  My 4Q18 estimate -$0.275 FCF = $4.5.  But that 4Q18 estimate uses $250,000 capex vs. $40,000 3Q18...conservative.  I can try to post my #'s if you want.  I tried to cut & paste from Excel, but it looked awful.  Maybe can attach doc.

 

I'm guessing the $3.0 FCF YTD is with working capital swings.

 

Thinking about CLWY's stock price...

 

Not a huge growth company, so don't expect it to double or anything crazy.  But huge FCF vs. price for the business, combined with common sense use of it can produce good results.  Does help confidence that sales, margins, FCF in the business is fairly stable.

[porcupine]

Looks like same store sales were down a bit (-.57%) when compared to the 9 months ending Dept. 30th, 2017.

[mbrock77]

Another 50 cent dividend announced today...

[DTEJD1997]

Another 50 cent dividend announced today...

 

Wow!

 

That is certainly great.  If CLWY can continue on with the $.50 yearly dividends, then this will morph into an income play.

 

For growth, simply open 1-2 stores a year.

 

Seems like a great plan action!

[brycepeterson]

Looks like same store sales were down a bit (-.57%) when compared to the 9 months ending Dept. 30th, 2017.

 

Re the -0.57% same store sales:  Did you calculate that or did CLWY disclose?  I was curious what the same store sales % was, given CLWY opened one new store this year, and total company sales growth was low single digit % vs. 3Q17.  When I read its sales growth, I figured sales were basically flat among the established nurseries, with little growth from the one new nursery.

 

If you calculated, do you mind showing me how you did it?

 

Thank you.

[porcupine]

Looks like same store sales were down a bit (-.57%) when compared to the 9 months ending Dept. 30th, 2017.

 

Re the -0.57% same store sales:  Did you calculate that or did CLWY disclose?  I was curious what the same store sales % was, given CLWY opened one new store this year, and total company sales growth was low single digit % vs. 3Q17.  When I read its sales growth, I figured sales were basically flat among the established nurseries, with little growth from the one new nursery.

 

If you calculated, do you mind showing me how you did it?

 

Thank you.

 

Yea sure. They had 19 stores in 2017. They added the Hebron store in April. Just take the average of 19 stores from January - March and 20 stores from April - September. Works about to be 19.667 stores for those 9 months.

 

Love the div... hoping its annual!

[brycepeterson]

Nice aspect of the $0.50 dividend (6.25% @ $8 stock), is it only consumes $3.7 million of free cash flow.  This leaves Calloway's $500,000 to $1 million in FCF to grow or pay-off debt (although debt vs. cash on balance sheet about equal).  Assuming FCF stays steady.

 

Actually, I'd love it if instead of paying the dividend CLWY's tried to buyback stock in the open market perhaps $9 or below; or Dutch Tender at $8.50 to draw weak hands.  (I know I'm a broken record - said this before.)  Couple advantages of this strategy (a) reduce share count = increase existing shareholders ownership and (b) once you've drawn out the owners willing to sell at $9 or lower, the $0.50 dividend consumes less cash each year.

 

Bryce

[bci23]

Nice aspect of the $0.50 dividend (6.25% @ $8 stock), is it only consumes $3.7 million of free cash flow.  This leaves Calloway's $500,000 to $1 million in FCF to grow or pay-off debt (although debt vs. cash on balance sheet about equal).  Assuming FCF stays steady.

 

Actually, I'd love it if instead of paying the dividend CLWY's tried to buyback stock in the open market perhaps $9 or below; or Dutch Tender at $8.50 to draw weak hands.  (I know I'm a broken record - said this before.)  Couple advantages of this strategy (a) reduce share count = increase existing shareholders ownership and (b) once you've drawn out the owners willing to sell at $9 or lower, the $0.50 dividend consumes less cash each year.

 

Bryce

 

I view Peter Kamin as a pretty savvy/aggressive capital allocator and him deciding to pay dividends instead of buying back stock signals that he doesn't think the stock is cheap/attractive and would rather take the cash (and maybe pay taxes?) vs. buyback/tender.

[porcupine]

Cornelius store opening up in Katy, TX at the end of January.

 

https://communityimpact.com/local-news/houston/katy/features/business/2019/01/14/cornelius-garden-center-nursery-to-open-in-katy-area/

[DTEJD1997]

Hey all:

 

The new Cornelius Nursery is certainly in a very good location.  I think the store has a good chance to do well.  Check it out on LoopNet:

 

https://www.loopnet.com/Listing/1403-Westborough-Dr-Katy-TX/14243407/

 

The bad news is that they are probably NOT considering selling off the Voss Rd. location and shutting down the Houston store(s).  There is a lot of capital tied up in that location.

 

Got the $.50/share dividend today.  Very nice indeed!

[Tag1911]

2018 Annual numbers are out.

 

https://www.otcmarkets.com/stock/CLWY/disclosure

 

[DTEJD1997]

Hey all:

 

I am bit surprised that 2018 numbers were lower than 2017's.  Not terrible though.

 

SG&A and interest expense is up, leading to the lower income.  I wonder if SG&A were up because of the new location being opened.

 

Sales were up a little.

 

In 2019, sales should go up because of the new location. 

 

If SG&A can move back towards 2017 levels, might be able to hit $.80/share in earnings?

 

If so, the stock might be able to move up a bit?

[writser]

Maybe I'm being to simplistic but I find it hard to see a super compelling investment here at the moment. ~$60m market cap, more or less debt free. Maintenance CapEx is like what? 750k? So what are we looking at? 10x EV/EBIT and a ~7% FCF yield? Is that honestly so attractive for a microcap retailer with hardly any revenue growth? Why would this be much more attractive than, for example Dillard's?

 

Now I'm exaggerating a bit here. I see that the FCF yield is relatively juicy, they are returning cash to shareholders and there's a smart guy involved. Probably a very decent stock for a high single digit IRR and there's nothing wrong with that. But surely you guys don't expect this to double again in 2019? Or do you expect huge revenue increases? Margin improvements? Is there lots of value in excess real estate? Or can Kamin squeeze even more cash out of the company? The 2018 numbers suggest to me it is unlikely there are easy levers left to pull. Should this trade at double the multiples? What am I missing?

 

Would be great if someone could explain to me why this is an 'excellent' stock pick rather than an 'above average' stock pick at the moment because I don't see that at first glance.

[DTEJD1997]

Maybe I'm being to simplistic but I find it hard to see a super compelling investment here at the moment. ~$60m market cap, more or less debt free. Maintenance CapEx is like what? 750k? So what are we looking at? 10x EV/EBIT and a ~7% FCF yield? Is that honestly so attractive for a microcap retailer with hardly any revenue growth? Why would this be much more attractive than, for example Dillard's?

 

Now I'm exaggerating a bit here. I see that the FCF yield is relatively juicy, they are returning cash to shareholders and there's a smart guy involved. Probably a very decent stock for a high single digit IRR and there's nothing wrong with that. But surely you guys don't expect this to double again in 2019? Or do you expect huge revenue increases? Margin improvements? Is there lots of value in excess real estate? Or can Kamin squeeze even more cash out of the company? The 2018 numbers suggest to me it is unlikely there are easy levers left to pull. Should this trade at double the multiples? What am I missing?

 

Would be great if someone could explain to me why this is an 'excellent' stock pick rather than an 'above average' stock pick at the moment because I don't see that at first glance.

 

Writser:

 

You very well may be right about some things...Sure, CLWY is PROBABLY not a table pounding bargain...but it is not "expensive".  This is especially the case if they can indeed improve upon sales & earnings as I speculated earlier.

 

I think I could present a very good case that while DDS is "cheaper" on most financial metrics than CLWY, CLWY is probably a better investment.

 

Look at the history of the two stocks.  I can remember looking into DDS back when I was in Law School and visiting their Houston Galleria location!  That was over 20 years ago!  They really have not done much of anything since then.  I think they've gone up x2 in price (approximately) and this is in about a 20+ year time frame!  They have also paid some dividends also...but certainly NOT a good investment.  If I recall correctly, they have a dual share structure and the founding family controls all the votes, the board and sets the direction.  Their interests have been RADICALLY different than a shareholder looking for a return on their investment.

 

Contrast that to CLWY!  My family has a cost basis of LESS THAN ZERO due to dividends paying back the initial investment and then some.  Sure would be nice to get another $.50/share in dividends!  What if the stock goes from 8 to 10?  AND they pay another dividend?  A $2.50 return in the next 10 months is probably going to be A LOT more than what can be gained in DDS.

 

Finally, and perhaps most important of all...you've got a motivated Peter Kamin!  I trust him much more than family at DDS.  Look at his track record.  I predict he will make some goods moves in the future that benefit shareholders.  Can the same be said of DDS?

[Fitz]

After CLWY's pretty poor first quarter they quietly had a decent Q2.

 

Revenue - 25,793

Gross Profit - 12,214

Net Income - 4,757

 

Gross profit compressed from 51% 2018Q2 to 47% 2019Q2

Net margin compressed from 19.5% 2018 Q2 to 18.4% 2019 Q2

 

SGA and Interest expense increased due to 21st store addition, without commensurate increase in revenue, and currently weighting on net income.

SGA and increased interest expense added 1.3 million to expenses in first 6 months with rev decline of 1 mil over same period.

 

CLWY did do a really good job of burning down some inventory to the tune of 2.7 million reduction and were able to get 7 million of cash flow from operations.

 

Anyone local have any insight on 2019 weather in Q1. Also looks like the Katy, TX property has come off loop net, not sure if this is due to pending sale or no interest...

[writser]

For the Peter Kamin fans TTS might be an interesting stock to take a look at. -66% yesterday. A SPAC dumped this retailer on the public. Kamin's on the board. What's he doing in this trainwreck? Some juicy stories here .

 

Though I have to say: it looks like it might be a cheap train wreck. Insiders have been buying a bit the past few years and own ~30%. Might be a nice investment if they can execute the Kamin playbook. Probably too hard for me.