November 04, 2013 - 11:33pm EST by
2013 2014
Price: 1.68 EPS $0.00 $0.00
Shares Out. (in M): 17 P/E 0.0x 0.0x
Market Cap (in $M): 28 P/FCF 0.0x 0.0x
Net Debt (in $M): 96 EBIT 0 0
TEV (in $M): 124 TEV/EBIT 0.0x 0.0x

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  • Personal Account Idea
  • Micro Cap
  • Jewelry
  • Turnaround


Note: given limited liquidity, this idea is likely only suitable for small funds and PAs


BGI is an obscure microcap luxury jewlery retailer with approximately $300M in revenues in Canada and the US whose new CEO has initiated a turnaround plan over the past 18 months.  The turnaround appears to be gaining traction in recent quarters, but there is significant additional potential should the turnaround continue, the initial improvement has been barely recognized by the market and the stock is trading at a significant discount to peer ZLC on similarly depressed earnings.


New CEO came on board 4/1/2012

The new CEO, Jean-Christophe Bedos, appears to be very credible, having overseen the expansion of the European jewlery store chain Boucheron between 2004-2011, along with significant experience at Cartier and degrees from the LSE and the Sorbonne.


Turnaround plan has two objectives:

1) renovate and remodel the existing store base over the next three years, including the relocation of some stores with an aim toward attracting a younger clientele and;

2) expand-- especially in China, with the first store opening in China in early 2014 as well as introducing additional "mono-line" stores in North America.


Here is a link to an article that discusses the plan in a bit more detail:


The opportunity is to improve sales per square foot to drive ebitda and free cash and, ultimately to delever the balance sheet.

This is a reasonably levered situation, so if the plan is successful, the stock will likely be a multi-bagger over the next 2-3 years.



Recent Trends Positive and Accelerating:

Here are the comp store sales over the past 5 quarters (BGI is on a March year-end):

1H2013: +3%;

2H 2013: +5%;

1Q2014 (June quarter) comps accelerated to +9% (September quarter comps not yet released)


Other signs that point in a positive direction, for at least the near-term:

1. Controlling shareholder, Montrovest, likely privy to more information than others, converted its debenture into common shares in August at $1.70/share despite having over 2 years left to do so.

2. With earnings for 1H 2014 and 1H comp store sales likely to be released in the next few weeks (BGI reports earnings only semi-annually), the company's CEO gave a presentation today (11/4) entitled "Birks: The Return!"  Hard to imagine he would give such an exurberantly entitled presentation (complete with exclamation point!) if recent trends and near-term outlook weren't confirming the continued turnaround.

3. Comp store sales from ZLC and SIG continue to be solid though the September quarter, in the mid-single digit range.


Valuation & margin opportunity:

debt: $94M (adjusted for 8/2013 financing)

equity valuation: $28M (adjusted for 8/2013 financing)

TEV: $124M

3/31/2013 Actual EBITDA: $15.3M;  TEV/EBITDA: 8.1x

3/31/14 estimated EBITDA: $21.3M; TEV/EBITDA: 5.8x

3/31/15 estimated EBITDA: $27.7M; TEV/EBITDA: 4.5x

I believe BGI can expand EBITDA to $21M in F2014 and $28m in F2015 assuming the new store remodels drive a 6% comp, which is below the recent trend of 9%.


As a sanity check, this ebitda margin would only be 8.4% in F2015 (march year-end).  This seems very achievable (again if turnaround continues to unfold at a reasonable rate) when one notes 1) that SIG-- a competitor not in a turnaround-- has EBITDA margins of 16.9% and 2) the projections for ZLC's EBITDA margins are to reach the upper single digits within the next three years through its turnaround and 3) BGI's own EBITDA margins were as high as 9.1% in 2006. 


ZLC valuation: ZLC is trading at 14.7x  trailing EBITDA compared to 8.1x trailing for BGI.  While BGI certainly deserves a liquidity discount, the discrepancy seems too large, given that they are both in the early innings of their respective turnarounds....


Looked at another way, I could see BGI getting an 8x multiple of EBITDA on F2015 (remember this is not that far off given March year-end), within 12-18 months yielding a stock price of $7.70.  Even at a 6x multiple on F2015, the stock would be trading at $4.35.  And, this requires only a 6% comp, along with some allowance for new store sales, and modest overhead investment.



Further evidence of turnaround's success

Improving financial results over the near/medium term

Greater awareness of the company/analyst coverage

If turnaround stalls, possible sale of the company



Turnaround stalls

Consumer confidence



I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.



Further evidence of turnaround's success

Improving financial results over the near/medium term

Greater awareness of the company/analyst coverage

If turnaround stalls, possible sale of the company


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