20

Casual Male Retail Group Inc.

Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Casual Male Retail Group Inc. (CMRG) Company Business Casual Male Retail Group is the largest specialty apparel retailer for big and tall men. They have retail stores in the United States and London, England. They also have direct businesses (catalogue and ecommerce) throughout the US, Canada, and Europe. Currently, they operate 380 Casual Male XL retail stores, 60 Casual Male XL outlet stores, 4 Destination XL stores and 16 Rochester Clothing stores. Brands: B&T Factory Direct: Operate a catalog business as well as an e-commerce site o Merchandise is an expanded selection but similar to the merchandise found in Casual Male XL outlet stores Was started in 2007

Casual Male Full price apparel is sold through Casual Male XL retail stores, Casual Male XL catalogs and the Casual Male XL e-commerce website They also operate Casual Male XL outlet stores for discount prices

Rochester Business High end, luxury fashion apparel which may have future growth since their brand will be presented to new potential customers with Rochester clothing being in the new DXL stores Was affected the most by the 2008 recession

DestinationXL: Launched in fiscal 2010 Merges all of CMRG's brands under one roof 4 stores opened last year and they all exceeded their expectations

Other Direct Businesses (E-commerce) Shoes XL - sell shoes Living XL - sell chairs, outdoor accessories, travel accessories, bed and bath and fitness equipment International Web Stores - Operates for Casual Male XL and Rochester Clothing in 9 European countries : U.K., Germany, France, Italy, Spain, Finland, Sweden, Denmark and the Netherlands.

Industry Analysis Men's big and tall apparel market includes pants with a waist size of 42"+ and tops size 1X+ industry generates $5.5 billion to $6 billion in sales annually, amounting for 13% of the overall men's apparel business Growth in the industry is driven by changing market demographics Within the industry, CMRG has approximately 7.7% market share and they believe they can reach 12%+ Competitors: Discount retailers such as Wal-Mart, J.C. Penney, and Kohl's CMRG believes they are the only national operator of apparel stores focused on the men's big and tall market

Additional Notes: Fiscal 2010 - marks the first time in 10 years that they are debt free and cash flow positive

Future Outlook - Expectations Fiscal 2011 - earnings per diluted share of $0.4 - $0.45 o Increase in Sales of 3%-4% o Gross Margin expected to improve 0.75%-1.25% o SG&A increase of 3% o Expect FCF of approximately $16 million, Cash amount to $20-$25 million o Capex of $18 million due to the launch of their new DXL Stores Open an additional 14-15 DXL stores in fiscal 2011 o If DXL continues to be a success, they expect to have 75-100 DXL stores by fiscal 2015 o During Q2 of Fiscal 2011, CMRG will launch the new Destination XL e-commerce website, which will bring all of their e-commerce sites together o As new DXL stores open, other brand stores will close 15 - 20 existing stores expected to close during fiscal 2011 Objective Increase revenues by 30% - 40% over the next 5 years and more than double current operating margins o Success of DXL is critical to this revenue growth objective Financial Statement Notes: One time impairment charge of Goodwill and Assets of $71.4 million. $65.6 million was due to the bad economy in 2008 Have no long-term debt

Potential Risks: They do not hedge their foreign exchange risk They do not hedge any of their interest rate risks that is evident with their Credit Facility

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

-18.6% -8.7% -222.1% -15.3%

-42.6% -14.5% 1.0% -14.2%

-14.9% -4.4% 7.4% -7.1%

2.0% 0.6% 4.1% -4.7%

12.1% 3.8% 6.3% 4.2%

19.6% 13.3% 0.3% 13.7%

0.2% -152.1% 0.1% -54.3% 2.8% -98.5% -2.3% -56.3%

6.6% 3.4% 5.3% 12.8%

13.8% 8.4% 11.4% 13.3%

Recent numbers look positive 2009 numbers are all a reflection of how much the recession in 2008 affected the company
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio

0.08 1.27 1.14 0.00 0.65

0.21 1.75 1.93 1.17 0.03

0.23 1.74 2.37 1.51 0.09

0.21 1.31 2.48 1.53 0.33

0.41 1.34 2.18 1.07 0.52

0.36 1.89 0.47 0.00 0.04

0.27 1.39 0.79 0.07 0.25

0.17 1.21 1.80 0.11 0.61

0.25 1.76 0.94 0.03 0.09

0.36 2.37 0.64 0.00 0.00

Quick ratio shows that a massive amount of their assets are in inventories and it is below the threshold of 1 which may show some concerns
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue

2.15 0.0% 0.3% 20.4% 0.0%

2002

1.49 1.2% 1.8% 28.5% 0.0%

2003

1.57 1.0% 1.3% 31.9% 0.0%

2004

1.36 1.6% 1.2% 36.3% 0.0%

2005

1.48 1.3% 1.2% 36.0% 0.0%

2006

1.46 1.1% 0.8% 36.6% 0.0%

2007

1.43 1.1% 0.6% 38.4% 0.0%

2008

2.21 1.1% 0.5% 56.2% 0.0%

2009

2.18 1.1% 0.6% 38.2% 0.0%

2010

2.16 1.0% 0.9% 38.3% 0.0%

2011

Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

-16.05 0.9 17.5 2.56 142.48 0.0% 29.6%

-10.37 -1.92 0.31 2.34 6.4 4.7 4.2 4.3 45.3 43.7 46.1 43.0 3.40 2.66 2.40 2.79 107.45 137.31 151.82 130.77 89.4% 100.6% 116.1% 100.5% 25.9% 23.0% 21.9% 21.7%

9.69 3.0 50.3 2.49 146.68 44.1% 24.5%

0.12 2.2 48.1 2.24 163.31 52.7% 25.4%

-45.16 1.7 34.1 2.37 154.25 46.4% 22.2%

2.70 2.3 32.5 2.35 155.00 35.2% 22.8%

5.03 3.4 29.8 2.35 155.45 29.0% 23.6%

2008

2009

2010

2011

P/E 445.00 - 0.18 22.29 13.91 P/S 0.40 0.04 0.34 0.54 P/BV 1.01 0.27 1.46 1.92 P/CF 15.06 - 0.24 5.40 7.26 P/FCF - 36.69 - 0.32 8.78 11.80 2008 and 2009 price multiples are largely biased due to the way the recession affected the company in 2009 I am not comfortable with these price multiples to say if the company is under or overvalued when comparing it to its historical past

Relative Ratio Comparison CMRG does classify some of its competitors in their latest's annual statement. I believe there direct competitors to consist of J.C. Penney (JCP), Nordstrom (JWN), Wal-Mart (WMT), Macy's (M), and Men's Wearhouse (MW).
MW Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ 39.51 2,030.00 1,900.00 40.97 24.50 61.3% 17.2 0.9 2.3 10.2 44.2 7.3 1.8% 0.0% 19.1% 20.7% 3.7% 0.9% 4.8% 72.1% 81.2% -3.0% 0.9 2.9 0.00 0.00 44.0% 43.6% 7.8% 6.5% 5.1% 4.2% 8.8% 7.0% 12.0% 9.9% 40.6 2.5 1.8 M $ 39.67 $ 16,430.00 $ 21,460.00 $ 39.95 $ 22.50 76.3% 13.7 0.6 10.4 7.1 14.0 6.2 2.0% 0.0% -4.6% 13.4% 5.5% 0.6% -0.4% 12.2% 48.0% 10.1% 0.6 1.4 1.12 1.31 40.4% 40.4% 9.1% 2.2% 4.8% -1.1% 5.9% -1.2% 21.9% -4.2% 74.8 3.2 1.2 WMT $ 61.06 $209,110.00 $256,140.00 $ 62.63 $ 48.31 26.4% 13.5 0.5 4.1 8.5 36.7 7.4 2.6% 2.1% 16.9% 32.0% 5.9% 0.5% 5.1% 7.1% 8.2% 9.2% 0.2 0.9 0.66 0.75 25.0% 25.1% 5.9% 5.9% 3.7% 3.6% 8.8% 8.7% 22.6% 21.4% 81.1 8.7 2.4 JWN $ 54.65 $ 11,340.00 $ 13,120.00 $ 54.98 $ 37.28 46.6% 17.4 1.0 6.4 10.8 24.2 8.1 2.0% 2.0% 17.0% 28.7% 12.0% 1.0% 4.7% 6.8% 14.3% 4.2% 1.7 2.2 1.61 1.86 39.4% 38.6% 11.5% 11.2% 6.3% 6.1% 8.6% 8.9% 34.4% 35.8% 5.5 6.2 1.4 $ $ $ $ $ JCP 36.80 7,860.00 9,510.00 43.18 23.44 57.0% 0.0 0.5 2.0 21.4 0.0 9.3 2.2% 2.4% 2.1% 0.0% -4.9% 0.5% -2.8% -137.4% -146.6% 0.0% 0.8 1.8 0.72 0.78 36.0% 38.1% 0.0% 5.0% -0.9% 2.4% -1.2% 3.4% -3.2% 9.0% 46.2 3.6 1.4 $ $ $ $ $ CMRG 3.38 163.86 160.27 5.05 2.83 19.4% 11.6 0.4 1.9 6.3 12.9 5.2 0.0% 0.0% 0.0% 0.0% -0.6% 0.4% -1.3% -652.0% 5.0% 1.5% 0.3 2.0 0.00 0.00 46.4% 44.5% 4.3% -0.7% 3.7% -1.8% 7.0% -3.1% 12.8% -6.0% 111.0 1.9 1.9

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

On a relative basis, CMRG looks to be overvalued in relation to the multiples o However, I wouldn't rely on relative comparison especially for this company due to the fact that they bought out their only major competitor, Dahle's Big and Tall, in 2008 Concern arises due to their poor growth rates and poor long-term returns ratios

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced CMRG based on fundamentals. Based on my assumptions the market has currently priced CMRG to have a owners earnings FCF growth rate of around a 13% - 14%(14% if we adjust the discount rate to 15% due to them being in a niche market and relative risky due to how they were affected with the prior recession) year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively below its 5 year and 10 year historical averages. In fact over time, CMRG has failed to deliver a good FCF growth over time to shareholders. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 0% for the next 10 years with it slowing down in the later years. It has over the years not been able to successfully deliver owners earnings FCF growth to the shareholders. Under my assumptions, I believe the intrinsic value to be around $1.74 on the safe side and on the more optimistic side $2.06.

16 14 12 10 8

5 Yr Price vs Intrinsic Value

6 4
2 0 -2 05/07/2005 05/07/2007
Historical Price

05/07/2009
Intrinsic Value

05/07/2011
Buy Price

FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of -37.93%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. According to this model, the intrinsic value is roughly around $2.20 - $2.82 (I adjusted the growth to assume no growth and assume instead it is at terminal value and will grow 2.5%, also the range was given to the 12% discount rate vs 15%). Technical Analysis Looking at the chart below, the stock has clearly shot massively down since. I would not get into this stock unless it was cheaper than around the $2.00 minor support level.

Overview With a decreasing revenue since 2007 I find it hard to understand where they find their growth in years to come and I am not so fund of their typical market even though it is a niche market. In order for me to even consider purchasing this stock, it would need to be around its 2008/2009 low's and less than $0.90. It is to my believe that they are also over-valued and would at this point stay away from this stock. Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.