Back in my deep value days, I bought a big position in Reitmans (TSX:RET.A), the women’s clothing retailer. It’s been five years of a lackluster performance and I still own my 2,000 shares.
I liked Reitmans because of the solid balance sheet, its cost cutting program, the turnaround potential, and the two crusty old Reitman brothers in charge. I used to be a big fan of management that stayed with the same company for about five decades.
The stock has bounced around a bit, including reaching a high of above $8 in 2015 and briefly surpassing $7 in 2016. But for the most part it’s been a long, slow decline. Shares are currently a little below $3.50, which represents just over a 40% loss for your favorite reformed deep value investor. At least dividends have helped bring that loss up a little.
I’ve tried being patient with the stock and it just hasn’t worked. But you know what my biggest frustration is?
Reitmans just doesn’t care
It’s clear Reitmans’ management team just doesn’t care about bringing the stock price up. There’s an easy path the company can take to create value, yet management just doesn’t bother. This suggests to me that either a) they don’t care or b) they think the company is ultimately doomed.
That easy path is stock buybacks, of course, and they make all sorts of sense at today’s price. The company trades for 40% under its stated book value, a metric that doesn’t include very many intangible assets. In fact, most of its market cap is actually cash in the bank.
Why wouldn’t management be buying back these shares as fast as they can get their hands on them? It makes zero sense to me. They’d immediately be generating value while putting non-productive cash to work.
It’s not like Reitmans needs $166 million (or a little over $3 per share) in cash, either. The company generates a little free cash flow each year, basically enough to pay the dividend. I’d immediately cut the dividend and use a big bunch of the cash to do a share buyback. Or, if I’m the Reitman family, I offer a small premium and take the company private.
I want to sell my shares because Reitmans is a trash company in an even worse industry. But something like a share buyback or taking the company private makes too much sense to ignore. I envision selling my shares and then next week waking up to some big news that sends the stock 20% higher.
On the one hand, it’s silly to wait for an acquisition or other big event, since those things aren’t that likely to happen. Especially with a family-controlled company like Reitmans. My part-time grocery store gig is for a family-owned company, and these folks are typically a little crazy. Their whole identity is wrapped up in the company. So I doubt the brothers are going to sell.
But on the other it’s obvious some such move will create shareholder value. And the Reitman brothers own a shitload of shares. What exactly are these guys waiting for?
Value investing 101 is being patient and waiting for the catalyst, so I’m more inclined to hold today and collect my dividend while I wait for good news. But I promise you guys this: if shares move up 15-20%, I’d take my loss and get the hell out. I just don’t have confidence in the management team any longer.