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Steiner Leisure (Nasdaq: STNR)

Recs

1

July 07, 2011 – Comments (0)

Kind of an odd seeming one to be looking at maybe, but man this is a pretty interesting little gig these folks have going and it's actually a market beater over the last year and five years.

The business

Steiner Leisure provides spa services and products worldwide. Spa services include massages, facials, waxing, aromatherapy treatments, seaweed wraps, aerobic exercise, yoga, Pilates, hair styling, manicures, pedicures, and teeth whitening, as well as various specialized beauty and body treatments, acupuncture, and medi-spa services. It also develops and sells various beauty products comprising beauty preparations, such as lotions; aromatherapy oils; cleansers, creams, and other facial and skin care preparations; hair care products; moisturizers and lotions; and nail care products under the Elemis, La Therapie, Bliss, Remede, Laboratoire Remede, Steiner, and Mandara brand names. Steiner also owns and operates post-secondary schools located in nine states providing education in massage therapy, and beauty and skin care.

Who they sell it to

With 151 cruise ships representing 19 cruise lines, 53 resort spas, 11 urban hotel spas and six day spas Steiner maintains tremendous exposure to a wide consumer base around the world. Contractual agreements with ships typically last one to six years and land-based agreements range three to 25 years. The company also sells its own products and certain third-party products via aforementioned spas and cruises as well as online.

Big ships seem to be where it's at. As of February 11, 2011, 116 of the 151 ships served had large spa facilities. Ships with large spa facilities provided average weekly revenues of $59,521 in 2010 and $56,524 in 2009, as compared to average weekly revenues of $16,986 in 2010 and $14,397 in 2009 for the other ships served.

Balance sheet

The company has a healthy balance sheet with no debt and about 10% insider ownership, produces healthy returns on equity close to 20% and has kept revenue on a decent upward trend, even considering the recession. Margins have been shrinking a bit, but in good times they can maintain a net margin close to double-digits which I always love to see.

Revenue drivers

So a lot of this depends on how healthy the consumer really is. I mean if the cruise lines are hurting then so is Steiner. But it does seem like cruise lines are starting to come around, at least as far as traffic is concerned. And when you get on that boat, it's a lot easier to go ahead and justify pampering yourself cause you're already there. Like taking your kids to Disney...once you're in there money seems to lose all meaning. And come on, I mean who doesn't love a good spa treatment?

Valuation

I haven't done any extensive valuation work on this one, so it's hard to say whether it's cheap, expensive or just in between. Right now it trades for EV/EBITDA of 9.3 and 15 times trailing earnings. Going back 12 years (starting in 2000) these numbers average 10.4 and 14.6 with highs of 13 and 17.7 and lows of 7.3 and 11.2, so it feels like it's kind of in between really. A cursory glance at the cash flow statement looks pretty clean and they generate healthy free cash flow every year.

Moving forward Foolishly

I started initially looking at this on Friday, July 1 and it's already crept up from $46 to close to $50. That said, this is a rather thinly traded stock and I would expect it to swing more than most. I would say for sure it's on the watch list and I'm going to be digging a lot deeper. With a market cap of not even $750 million, this is the size company that can still offer some considerable growth.

Foolish best,

Jason

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