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A Little Late to the Baby Shower

  • March 13, 2006

About a month ago I noticed a store at a neighborhood mall called Motherhood Maternity that was both compact and seemed to have a decent amount of foot traffic. A quick glance at the reasonably priced inventory (for a specialty retailer) made me think that this store could be part of a bigger chain and a conversation with the sales rep did indeed confirm this suspicion. The story got more interesting when the sales rep told me that their parent company also owned other premium chains (think higher margins) such as “A Pea in the Pod”, “Mimi Maternity” and “Edamame Spa”. At this point I was hoping that the parent company of these chains was a publicly traded company and had a reasonable valuation. A little bit of research helped me determine that this company was indeed public and was called Mothers Work Inc (MWRK).

My happiness was short lived when I found out that Mothers Work had a trailing Price/Earnings ratio of 260.95 and the stock had appreciated more than 100% in just the last three months. It turns out that this company is a turnaround story and the company expects to post a profit of anywhere between 79 cents to $1.03 per share for fiscal 2006 when compared to a small loss in 2005. Apart from the chains mentioned above, Mothers Work also sells its apparel through mega-retailers such as Sears and Kohls. Was I too late to this party or is there additional upside to this stock? A February same-store sales (an important indicator for retail companies) dip of 2.2% combined with guidance from the company that it expects a loss of 5 cents per share to earnings of 1 cent per share (after stock options) for the current quarter leads me to believe that this stock may be currently overvalued. Watching this company from the sidelines over the next couple of quarters to see if the company can meet its guidance appears to be the best strategy at this point.