Despite fundamental issues with merchandise inventory Thomas Stoltz persists in expansion plans. While it’s great that Body Central wants to expand, if it doesn’t come up with a viable selection of merchandise the whole company will remain in jeopardy.
While Body Central struggled with same store sales and profitability, competitor rue21, inc. (NASDAQ:RUE), which caters to men and women, experienced positive same store sales, revenue and net income. Its stock price increased 39% since the start of 2012 (see chart above). The CEO Bob Fisch generally credits favorable merchandise assortments and flexible real estate strategies for its success. Its dual gender marketplace gives it a wider market.
Another specialty retailer, The Wet Seal, Inc. (NASDAQ:WTSLA) also struggles. Same store sales declined during every month in 2012. Pressures to change its strategy from investment company Clinton Group forced the resignation of a number of senior executives and board members including its merchandising leader. Wet Seal’s stock declined 15% (see above chart) since the beginning of 2012 (not even as bad as Body Central). On Jan. 7, a new CEO, John Goodman an executive with apparel industry experience in companies such as Gap, Levi Strauss, and Bloomingdale’s was appointed to lead the company.
In summary, as we begin 2013, Body Central still faces the same three problems. First, problems selling merchandise at full prices still persist. Second, gaps in management persist. Thomas Stoltz remains the interim CEO and Chief of Operations. A talented merchandise team with the ability to put together a viable merchandising arrangement remains unannounced. Third, unnecessary expansion continues. The company plans on using local government incentives to expand its distribution center. In addition, the company opened 13 stores in the 4th quarter.
Finally, a Wet Seal scenario may lie on the horizon. Wasatch, Inc. now owns more than 5% of Body Central. Body Central doesn’t expect things to get better until later in 2013. Consequently, if Wasatch starts exerting pressure on Body Central to make changes sooner, the resulting publicity fallout will result in an even lower share price from this point. In any event, avoid this massive value trap.
The article Avoid This Retailing Value Trap originally appeared on Fool.com.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.