BOOKS-A-MILLION BAMM
December 19, 2007 - 11:09am EST by
robert511
2007 2008
Price: 11.48 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 184 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

Books-A-Million (BAMM) is the third largest bookstore chain in the US. It is still controlled by the founding Anderson family. In many ways BAMM has performed better than B&N or Borders but receives a lower valuation. The company is barely followed by investors, perhaps because it is headquartered in unfashionable Florence, Alabama and does not promote itself to Wall Street. The last conference call had no questioners. The hair on this idea is the significant related party transactions with the Andersons, but I think there is less to this than meets the eye. Between a recent $3 special dividend and on-going stock buy backs, the company is sending a lot of cash back to shareholders and is making its balance sheet more efficient.
 
There’s really nothing fancy in this idea; it’s just a good company managed for the long-haul that keeps getting a bit better every year. The price is right (EV/EBITDA < 5, P/E = 11, ROE 17%, Yield 3.3%). Unlike Borders and B&N, BAMM has been profitable for at least the past 10 years. In only one of those years has revenue declined (and that barely). There are 16 million diluted shares. The Anderson family controls 48% of the shares. BAMM bought back 179k, 405k, 229k shares in June, August, and October.
 
BAMM has 210 stores, 185 of which are superstores, with FY 2008 revenues of $550 million. The stores are concentrated in the southeast and midwest. BAMM recently announced their expansion into Pennsylvania and Nebraska. For FY 2009, BAMM plans a net increase of stores of 11-18, or 5-9%. This is an acceleration of growth from FY2008. They describe their real estate strategy as locating in upscale retail and lifestyle centers in medium and small urban areas, targeting well-educated customers of moderate- to above-average income. They have an e-commerce division. In addition to BAMM book sales, the e-commerce division controls online book sales for Wal-Mart, which should give some indication of the division’s competence.
 
Same Store Sales for Q3 were up 2.1%. For the first three quarters, they were up 2.8%. Last year’s diluted EPS were $1.12. However .09 of Q4 2007 after-tax EPS were due to gift card breakage income for periods prior to 2007, resulting from an estimate change. So let’s call last year’s Adjusted EPS $1.03. Almost 20% of their stores are in Florida and the real-estate bubble there might cause some issues, so I am assuming flat adjusted Q4 earnings of $0.80, resulting in 2008 earnings of $1.08.
 
While book sales can be heavily influenced by blockbuster releases (such as Harry Potter), these tend to affect industry sales as a whole, not market share. Participants can get whatever titles they need within a few days. Thus there is less risk than in some other parts of retail, such as apparel, where guessing wrong on denim can make or break you.
 
Here’s the comparisons to Barnes & Noble (BKS) and Borders (BGP)
 
As of 12/17/07
BAMM
BKS
BGP
Revenues (ttm; million)
        542
      5,444
      4,188
Op. Margin (ttm)
5.3%
4.4%
-4.3%
ROA (ttm)
5.4%
4.6%
-11.1%
ROE
17%
14.9%
-71.6%
P/E (forward)
          11
          16
          19
EV/EBITDA (ttm)
         4.9
         5.4
       11.0
P/B
         1.8
         2.2
         1.6
 
 
It took me a while to gather information about the Anderson family. They keep a low profile. They own the Anderson Companies whose roots go back to a humble newspaper stand constructed in 1917 by 14-year-old Clyde W. Anderson, who had dropped out of school to support his family upon the death of his father. The companies now have revenues over $2 billion (excludes BAMM) and is #166 on the Forbes Largest Privately Held List. Anderson Media Corporation is the largest U.S. distributor and merchandiser of consumer magazines (which is where they are strongest), pre-recorded music, and books. TNT Fireworks is the country's largest importer and distributor of consumer fireworks. Anderson Press publishes children's books and houses Anderson units, Whitman Publishing and H.E. Harris, which sells books and supplies for coin and stamp collecting. They owned C.R. Gibson, which sells collecting books, such as photo and scrap albums, and was recently sold for $70 million. In 1980, the family purchased the 14-store Hibbett Sporting Goods chain, which began a rapid growth that culminated in the company going public on Oct. 16, 1996, and the family selling most of its interest. Charles Anderson was the first business leader in the U.S. to receive a personal invitation to trade with China in 1972 after President Nixon’s visit and was one of the first American businessmen to visit China since 1948.
 
When I first looked at the Related Party transactions, before I discovered the above, I was concerned that the related entities might be companies established to take advantage of the common ownership with BAMM. Once I discovered that they were leading companies in their own right, the arrangement seemed much more rational. In FY 2007, BAMM purchased $24.7 million of its magazines, seasonal music, and newspapers from Anderson Media. BAMM purchased $1.4 million of collectibles, gifts, and books from Anderson Press. There were additional, less consequential transactions also, relating to things like office and airplane expenses. I would prefer that these transactions did not occur but it’s not as if BAMM was dealing with a second-class operation. Also, it would not necessarily be in BAMM’s best interest to avoid dealing with the largest U.S. distributor and merchandiser of consumer magazines.
 
You can certainly argue that the valuation of BAMM should get a haircut based on the control by one family, although that same argument largely applies to BKS which is controlled by the Riggio family. BKS also has similar related party transactions with Riggio entities. I don’t see any substantial reason for the valuation gap between BAMM and BKS.
 
There’s no indication one way or another as to whether the Anderson family would be amenable to a take-over of BAMM or would want to take BAMM private.
 
 
 

Catalyst

1) Accelerated growth phase in FY 2009
2) Continued return of cash back to shareholders
    sort by   Expand   New

    Description

    Books-A-Million (BAMM) is the third largest bookstore chain in the US. It is still controlled by the founding Anderson family. In many ways BAMM has performed better than B&N or Borders but receives a lower valuation. The company is barely followed by investors, perhaps because it is headquartered in unfashionable Florence, Alabama and does not promote itself to Wall Street. The last conference call had no questioners. The hair on this idea is the significant related party transactions with the Andersons, but I think there is less to this than meets the eye. Between a recent $3 special dividend and on-going stock buy backs, the company is sending a lot of cash back to shareholders and is making its balance sheet more efficient.
     
    There’s really nothing fancy in this idea; it’s just a good company managed for the long-haul that keeps getting a bit better every year. The price is right (EV/EBITDA < 5, P/E = 11, ROE 17%, Yield 3.3%). Unlike Borders and B&N, BAMM has been profitable for at least the past 10 years. In only one of those years has revenue declined (and that barely). There are 16 million diluted shares. The Anderson family controls 48% of the shares. BAMM bought back 179k, 405k, 229k shares in June, August, and October.
     
    BAMM has 210 stores, 185 of which are superstores, with FY 2008 revenues of $550 million. The stores are concentrated in the southeast and midwest. BAMM recently announced their expansion into Pennsylvania and Nebraska. For FY 2009, BAMM plans a net increase of stores of 11-18, or 5-9%. This is an acceleration of growth from FY2008. They describe their real estate strategy as locating in upscale retail and lifestyle centers in medium and small urban areas, targeting well-educated customers of moderate- to above-average income. They have an e-commerce division. In addition to BAMM book sales, the e-commerce division controls online book sales for Wal-Mart, which should give some indication of the division’s competence.
     
    Same Store Sales for Q3 were up 2.1%. For the first three quarters, they were up 2.8%. Last year’s diluted EPS were $1.12. However .09 of Q4 2007 after-tax EPS were due to gift card breakage income for periods prior to 2007, resulting from an estimate change. So let’s call last year’s Adjusted EPS $1.03. Almost 20% of their stores are in Florida and the real-estate bubble there might cause some issues, so I am assuming flat adjusted Q4 earnings of $0.80, resulting in 2008 earnings of $1.08.
     
    While book sales can be heavily influenced by blockbuster releases (such as Harry Potter), these tend to affect industry sales as a whole, not market share. Participants can get whatever titles they need within a few days. Thus there is less risk than in some other parts of retail, such as apparel, where guessing wrong on denim can make or break you.
     
    Here’s the comparisons to Barnes & Noble (BKS) and Borders (BGP)
     
    As of 12/17/07
    BAMM
    BKS
    BGP
    Revenues (ttm; million)
            542
          5,444
          4,188
    Op. Margin (ttm)
    5.3%
    4.4%
    -4.3%
    ROA (ttm)
    5.4%
    4.6%
    -11.1%
    ROE
    17%
    14.9%
    -71.6%
    P/E (forward)
              11
              16
              19
    EV/EBITDA (ttm)
             4.9
             5.4
           11.0
    P/B
             1.8
             2.2
             1.6
     
     
    It took me a while to gather information about the Anderson family. They keep a low profile. They own the Anderson Companies whose roots go back to a humble newspaper stand constructed in 1917 by 14-year-old Clyde W. Anderson, who had dropped out of school to support his family upon the death of his father. The companies now have revenues over $2 billion (excludes BAMM) and is #166 on the Forbes Largest Privately Held List. Anderson Media Corporation is the largest U.S. distributor and merchandiser of consumer magazines (which is where they are strongest), pre-recorded music, and books. TNT Fireworks is the country's largest importer and distributor of consumer fireworks. Anderson Press publishes children's books and houses Anderson units, Whitman Publishing and H.E. Harris, which sells books and supplies for coin and stamp collecting. They owned C.R. Gibson, which sells collecting books, such as photo and scrap albums, and was recently sold for $70 million. In 1980, the family purchased the 14-store Hibbett Sporting Goods chain, which began a rapid growth that culminated in the company going public on Oct. 16, 1996, and the family selling most of its interest. Charles Anderson was the first business leader in the U.S. to receive a personal invitation to trade with China in 1972 after President Nixon’s visit and was one of the first American businessmen to visit China since 1948.
     
    When I first looked at the Related Party transactions, before I discovered the above, I was concerned that the related entities might be companies established to take advantage of the common ownership with BAMM. Once I discovered that they were leading companies in their own right, the arrangement seemed much more rational. In FY 2007, BAMM purchased $24.7 million of its magazines, seasonal music, and newspapers from Anderson Media. BAMM purchased $1.4 million of collectibles, gifts, and books from Anderson Press. There were additional, less consequential transactions also, relating to things like office and airplane expenses. I would prefer that these transactions did not occur but it’s not as if BAMM was dealing with a second-class operation. Also, it would not necessarily be in BAMM’s best interest to avoid dealing with the largest U.S. distributor and merchandiser of consumer magazines.
     
    You can certainly argue that the valuation of BAMM should get a haircut based on the control by one family, although that same argument largely applies to BKS which is controlled by the Riggio family. BKS also has similar related party transactions with Riggio entities. I don’t see any substantial reason for the valuation gap between BAMM and BKS.
     
    There’s no indication one way or another as to whether the Anderson family would be amenable to a take-over of BAMM or would want to take BAMM private.
     
     
     

    Catalyst

    1) Accelerated growth phase in FY 2009
    2) Continued return of cash back to shareholders

    Messages


    Subjectsales vs. BKS and BGP
    Entry01/11/2008 07:19 AM
    Memberrobert511
    Hope the formatting is OK
    BAMM's results feel between BGP and BKS. Considering the retail environment in general, I think the results are satisfactory.
    FIRST 9 WEEKS THIS QTR
    SALES SAME STORE SALES
    BAMM 5.3% 0.0%
    BGP (US STORES) 6.5% 2.4%
    BKS STORES 4.1% -0.4%

    Subjectdumb comment
    Entry01/26/2008 02:37 PM
    MemberSpocksBrainX
    it is ironic - one of the reasons I've never looked at this company is because I detest the stores - particularly the narrowness of the aisles and an overpowering feeling of crampness if only one other person is with you in the row. In fact, I remember the first time I walked into a spacious BKS and was amazed at how much a little elbow room could do for perusing the shelves...anyway, thanks for posting. I'll put it on my list.

    Subjectre: dumb comment
    Entry01/27/2008 08:36 AM
    Memberrobert511
    Were you perhaps in one of the stores that BAMM took over from Crown Books (mostly in Chicago and Washinton DC. Those are very cramped as you noted but there are not too many of them. The superstores are similar to the B&N and Borders superstores.

    Subjectone-time dividend
    Entry01/28/2008 11:01 AM
    MemberSpocksBrainX
    that one-time dividend this year - doesn't it make you wonder? I'm not sure why they did it.

    What was a nice BS last year in Q3 with 34m in cash and 7.1m in debt is now an ugly BS with 8.1m in cash and 51m in STD and still the 7.1m in LTD. Why did they do it? I guess it isn't as bad as insanely stupid monster buybacks many people did last year but why did BAMM do such a huge one-shot deal? any thoughts? They were very incremental before. It makes me shake my head.

    I have to admit - seeing this makes my enthusiasm wither...

    Subjectre: one time dividend
    Entry01/28/2008 05:11 PM
    Memberrobert511
    $50 million of net debt vs $93 million of shareholder equity hardly make this an "ugly DS". Frankly, I thought they had too much cash before

    Subjectupdate on BAMM
    Entry04/26/2010 01:46 PM
    Memberrobert511

    It's been a wild ride for the shares of Books-A-Million. The stock of BAMM cratered to $1.70 in November, 2008, rose to 15 in August, 2009, then declined below $6 in December and is now at $8.35. Despite a large percentage of their stores being located in Florida (from news reports you'd guess that the whole state is evicted because of foreclosures) and reports of the imminent demise of bricks-and-mortar booksellers (and there's been such a drumbeat since Amazon started over a dozen years ago),  BAMM's business performance has been pretty steady, especially since Clyde Anderson took over as CEO in March 2009. The Anderson family owns the majority of BAMM's shares.

     

    Year Ending

    Jan-10

    Jan-09

    Jan-08

    Revenue (000)

     $     508,667

     $     515,357

     $     536,054

    Net Income (000)

     $       13,836

     $       10,574

     $       16,522

    EBITDA (000)

     $       36,070

     $       33,337

     $       41,409

    FCF (000)

     $       21,260

     $       19,404

     $       17,616

    EPS

     $          0.88

     $          0.68

     $          1.00

    Mkt Cap as of 4/25/10

     $     131,462

    (000)

     

    EV as of 4/25/10

     $     141,510

    (000)

     

    EV/Ebitda

                 3.92

     

     

    EV/FCF

    6.66

     

     

     

    Despite being the country's third largest bookstore chain, BAMM has virtually no analyst coverage. It was a big deal when last quarter's conference call actually had an analyst ask a question. No doubt this is due to Wall Street's perception that a company based in Alabama must be managed by a bunch of yokels.

     

    I'd argue that with growing Free Cash Flow, steady EBITDA, and a solid balance sheet. You are not taking much of a risk with an EV/EBITDA < 4 and  EV/FCF < 7 even if you believe that printed books are going the way of dial-up internet access and checks (both of which are still quite profitable businesses for companies like United Online and Deluxe). All but the most devoted technophiles must admit that there are some real issues to be addressed before the Kindle etc... dominates the market (if it ever does). I'd suggest that there are good reasons why Amazon doesn't disclose the profitability of the Kindle. Of course, BAMM doesn't have sex appeal. It's just makes money.

     

     

     

     


    SubjectRE: update on BAMM
    Entry07/07/2010 12:17 AM
    Membermm202
    BAMM has continued to get hit hard lately (along with many other stocks, of course). I'd love to hear your current thoughts on the name.  Great buying opportunity, or do you think that the story has changed here?
    TIA
    MM

    SubjectRE: RE: update on BAMM
    Entry09/01/2010 04:44 PM
    Memberrobert511
    Sorry it took me so long to reply. I'm on inactive status, so I didn't get an email alerting me to your message.
     
    It's curious that no analyst has pointed out that BAMM, unlike it's competitors, is making money even in traditionally weak quarters. In fact, Net Income last quarter increased YOY.
     
    I believe there are two reasons. They are not spending huge amounts of money (like B&N) developing hardware to compete against Amazon and Apple. Bookstores do not have a competitive advantage in software or hardware. Far better to buy off the shelf solutions.
     
    They also make a lot of money from "Bargain Books" whose margins are huge.
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