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Two Retail Companies You've Never Heard Of That Scream Buy Me

February 19, 2008 – Comments (1) | RELATED TICKERS: TAGS.DL , DLA

Tarrant Apparel Group (NASD: TAGS)

Tarrant is a company that I feel like I’ve been following since I was in diapers. The first thing that ever really stood out when I first looked at Tarrant roughly a decade ago was just how committed the CEO is to the company’s success. The current CEO, Mr. Guez owns approximately 38% of all outstanding shares which is practically unheard of now-a-days. Tarrant markets their private label brands to such companies as Kohl’s, Penney’s, Macy’s, Wal-Mart, New York & Co. and a few other large name department stores. The brand name that really excites me about Tarrant is American Rag. American Rag sales saw a jump in 2007 of roughly 35% and in a contractionary retail environment like we have now numbers like that impress me. Of course the majority of American Rag is sold in Macy’s and that company is performing horribly overall. But within the facets of just looking at sales of American Rag, Macy’s should be kissing Tarrant’s feet! Overall Tarrant is increasing their sales by roughly 8-10% per annum and other than a few horrid charges the company took in 2005 they are on the right track again. They have new credit facilities at their disposal, roughly 65M with which they can expand their production line. Most of their major private labels showed double digit growth in 2007 and I think they can continue this trend in 2008. There was a time when TAGS produced over $1.40 in EPS each year and I think they can reach those glory days yet again. Everyone seems to be throwing in the towel on this company that they don’t understand and hardly even know. Let them I say, I’ll gladly take their shares at these levels.

Delta Apparel (AMEX: DLA)

Delta Apparel is another company that has a strong inside ownership presence with the top dogs here owning roughly 46% of the outstanding shares. Delta makes t-shirts and printed shirts for major department stores and uses a combination of production facilities in the Southeastern United States and Latin America (Mexico & Honduras) to keep production costs in line. First of all, where are you going to go within the retail space from a company you don’t even KNOW and get a 2.4% dividend? Explain that one! Delta Apparel is trading well below its book valuation at just 0.7 times book, yet they have plenty of capital and credit available to maintain and expand their operations. Delta Apparel recently announced their quarterly earnings which showed a quarterly loss, but more importantly they stood by full-year 2008 guidance of 62-76 cents in positive earnings. That means the company is trading at roughly 10-13 times forward earnings which places them slightly below average within the sector. Delta is also trading at a microscopic 0.2 times price to sales. About the only dirt I can dig up on Delta that I’m not happy with is that asinine buyback of 4 million dollars they did just four months before they lowered earnings guidance. This is a solidly profitable company trading below book valuation, need I say more?

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