Saturday, November 19, 2005

Blair Corp- Update
Ticker: BL
Shares Out: 3.94 million
Market Cap: $162 million
Price: $41.2
Avg Volume: 30,000
P/E: 22
Dvd Yield: 1.5%

We thought it was time for a brief update on Blair Corp, the small Warren, PA based catalog and internet clothing retailer. Blair was another of the companies on your editor's list of below NCAV companies in a 2002 article published in a major personal finance magazine. While Blair is not currently trading below its NCAV it still was when we started this site in 2003, and was one of our first Cheap Stocks posts.

Since then, shares of Blair are up about 90%, not including dividends. What really caught our attention was the fact that the company recently bought back more than half of its outstanding shares. What does that tell you?

The Fundamentals
2004 fiscal year sales were $540.8 million, down from 2003’s $625.5 million, however, the decrease was primarily due to a divestiture. Net income was $14.9 million in 2004, for a net profit margin of 2.7 percent, versus income of $14.5 million in 2003, and a 2.3 percent net margin.

For the third quarter of 2005, Blair reported sales of $98.1 million, and net income of $1.4 million, down from $107.1 million and $2.9 million for the same quarter last year. The company attributed the decline to the sale of its Crossing Pointe catalog, weaker than expected response to its letter mailings, asset sales, and tender offer related expenses (the company bought back 4.4 million shares @ $42 per share).

After the stock buyback, the company has just 3.94 million shares outstanding, so these shares are getting tougher to come by. The balance sheet is not as strong as it once was. The company spent much of its cash hoard ($50.5 million at year end 2004), and took on debt ($143 million at end of third quarter, listed as short term notes payable)in order to finance its tender offer.

Going Private?
The tender offer, announced last May, and completed in August, has us thinking that this profitable company might ultimately go private. Rigorous regulatory issues, such as Sarbanes Oxley, can weigh heavily on small companies such as Blair. The following is the company's explanation of the tender offer, from a May, 2005 press release:

As a result of this tender offer, two of Blair’s major shareholder groups, Loeb Partners Corporation and Santa Monica Opportunity Fund L.P., have each separately agreed to enter into “standstill” agreements with Blair and tender all of their shares. As part of the standstill agreements, the two groups have agreed they will not attempt to exercise any control over management of Blair, they will vote in accordance with the board and management of Blair, and they will not acquire any additional shares of Blair for a period of five years.

“Blair will not accept Loeb’s recent offer to acquire the company,” said John Zawacki, president and CEO, Blair Corporation, “but will instead go forward with the repurchase of more than half of our shares. We believe the interests of our shareholders, a fundamental priority of the Board, are best served by this stock tender buyback and the entrance into standstill agreements with two of our institutional investors. We are very pleased to reward our long standing investors and are convinced that Blair’s dedication to our core customers and our independence as a Warren- based company will maximize shareholder value for many years to come.”

From the company's perspective, this move seems like a takeover defense, or effort to retain control of the company. That's probably true, but Blair might still be on the way to going private. The question is, can you make any money if that happens? We'll leave that question open.

*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

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