cost-u-less culs
February 26, 2004 - 10:35am EST by
2004 2005
Price: 4.15 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 15 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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CULS opeartes 11 warehouse-style stores mainly on islands in the pacific and in the carribean. This is a microcap opportunity with, i believe, substantial upside. The stock is trading at less than book value ($4.48/share) is at approximately 7x run-rate earnings, has next to no debt and is generating free cash.

i am writing this quickly (and not as thoroughly as I would like) so as to post it quickly as I believe the opportunity is near-term.

A new management has cleaned up some of the mistakes of the prior team by closing a few underperforming stores (in New Zealand) and improving the cost structure. In addition, a typhoon has destroyed one of the company's 11 stores and that store has now been rebuilt and reopened.

now that the b/s has been addressed, CULS will begin opening new stores, though they have not indicated when that wil commence. i believe that each additional store adds approximately 15 cents a share as there will be little overhead required with additional stores.

CULS has had 7 consecutive quarters of positive comps and comps have accelerated throughout 2003.

In addition PSMT has just closed its store on the island of Guam, where CULS has 2 of its stores. this should lead to incremental revenues as PSMT customers migrate to CULS.

here is my 2004 model:

Revs: $200M
GP: $35.6m (17.8%)
Store exp: $24M
G&A: $6M
D&A: $1.6M
Int: $0.4M
Other inc: $0.2M
pretax: $3.8M
aftertax: $2.28M
eps: $0.60

This model grosses up the 2003 revenues for the remodel which was only open for 4Q and assumes a 5% comp. (easy comparisons in the 1st half suggest this is easily achievable). I have assumed no new stores in 2004. As I mentioned, i believe each new store adds about $0.15/share. with flat comps in 2005 and one new store, 2005 eps will be approx. 75 cents.

beyond the eps, D &A is 1.6m/year and capex is just 0.6M, so there is an additional 26 cents of free cash beyond the eps.

again, this is a very cheap stock on all measures: P/S is less than 8% and FCF yield is approx 20%. Admittedly, this is not the greatest business on the planet, but its valuation coupled with the move toward growth should move the stock much higher over the next 3 months- one year.

concentration of business in just 11 stores.
tourism - related risk as this drives island economies
larger competitors move into CULS' markets (though they could do this through a buyout as well)


earnings report announced this morning
company moving to growth mode
potential buy-out
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