A Cheap Retail Play

Written by GSCR Staff   
Tuesday, 09 July 2013 08:42

In the past two editions of the Goldman Guide we have mentioned one of our May 30-30 picks, Pacific Sunwear of California (NASDAQ – PSUN), basically telling you to keep the buy on.  The stock is up nearly 33% since we included it in our premium research monthly periodical.  We think the sector still can be the right place to put some money provided it is in the right spot.

Along those lines, we have a new stock we believe might make a run in the short-term.  dELiA*s, Inc. (NASDAQ – DLIA - $1.25) has not only a unique spelling, but a specific target demographic, teenage girls.  OMG!  The company develops, markets, and sells apparel, dresses, swimwear, footwear, outerwear, and accessories through direct mail catalogs, the internet, and 104 retail stores in 33 states.

A quick glance at the chart shows a very bullish indication in the short and intermediate term.  The company is expected to turn the corner from an EPS perspective for 3Q13 as well, going from red numbers to flat or slightly positive.  Finally, the stock has traded nearly 250,000 shares per session over the last three months, a large number for a stock with a market cap under $40 million.  The stock has nearly doubled in that time.

A couple of catalysts have occurred recently that could aid dELiA*s and its bottom line.  First, the company sold its Alloy brand to HRSH Alloy Apparel and Accessories for $3.7 million.  Second, the firm entered a $30 million revolving credit deal with Salus Capital Partners, LLC and a $15 million letter credit facility with GE Capital.

Summer shopping and the back to school run could give the company a seasonal bump in revenue.  We like a price target of $1.75 to be hit sometime late this quarter. 

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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