Choice Equities Capital Management disclosed in its Q1 2019 Investor Letter (download a copy here) quarterly return of 10.5%. Among the quarterly detectors in its portfolio was Destination Maternity Corporation (NASDAQ:DEST), for which the fund wrote the following.
“In the detractor column, light hedging reduced gross performance by ~1.5% while our position in Destination Maternity (DEST)also deducted ~1.5% from performance in the quarter.
DEST shares have been stuck in neutral since our entry point two quarters ago. Though the new management team continues to make progress in rightsizing its cost structure, poor optics in critical top line variables continue to muddy the picture of the company’s potential earnings power. The Q4 report fell short of expectations and produced some outbursts of seriously rotten sentiment from investors as anyone who was on the call can attest. While the negativity is something that can be expected given shares’ recent performance, a dispassionate and forward-looking analysis of the earnings report suggests a few critical variables may have been overlooked that point to improvement, and potentially soon.
Gross margin, which declined meaningfully from 3Q to 4Q, was later confirmed to be running nearly flat to the prior year’s quarterly level thus far in Q1 which implies an improving trend in merchandising efforts given subsiding product discounting. Additionally, performance in the company’s eCom business, a key pillar of the investment case which has featured unimpressive flattish growth in each of the last two quarters,has generally been underwhelming for a company intent on transitioning much of its business to the online channel. However, much of the sales softness stems from the company’s third-party business as management has placed a renewed emphasis on pursuing sales at higher margins there. In contrast to this subsegment, the company’s own site eCom sales, which importantly is now 80% of the eCom business, continues to perform well with 9% growth for the quarter. With the third-party business stabilizing, growth in the total eCom channel looks set to improve to a mid-single digit or better levels soon.
As before with many of our investments, we believe the current muddied optics and lack of investor attention combine to make for an interesting opportunity. As these metrics begin to show improvement and the poor optics fade, a case can be made that the current 30% levered free cash flow yield presents quite an attractive entry point.”
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Destination Maternity Corporation is Moorestown, New Jersey-based designer and retailer of maternity clothes and related products. Year-to-date, the company’s stock lost 27.8%, and on May 14th it had a closing price of $2.00. Its market cap is of $29.20 million.
Heading into the first quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, same as in the previous quarter. Below, you can check out the change in hedge fund sentiment towards DEST over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock.
Chuck Royce’s Royce & Associates held the most valuable position in the company, worth $2.19 million, on the account of 769,967 shares. On Royce & Associates’ heels was Jim Simons’ Renaissance Technologies with a $2.06 million worth a position, based on 724,400 DEST’s shares. Other smart money investors with long positions in the company included Mark Kingdon’s Kingdon Capital, and Prem Watsa’s Fairfax Financial Holdings.
Kenny Polcari: America is witnessing the biggest disruption to sweep across the country’s real estate market in 175 years.
And this time it’s not just the usual suspects like New York, L.A. or San Francisco at the epicenter of this disruption. It’s happening in small cities like Boise, Meridian, Spokane and Austin that are upending the entire $43 trillion real estate sector as we know it.
It’s in America’s heartland, where home prices have exploded over 50%.
Houses that once went for $600,000 are turning into million-dollar moonshots.
The headlines of recent months tell the story, and they’ve been everywhere!
Markets Now: “Housing Is the Economy’s Energizer Bunny: It Keeps Going and Going.”
Bloomberg Businessweek says, “Yes, Real Estate Prices Are Soaring, and no, It’s not a Bubble.”
Markets Now runs with the headline, “The Housing Market Is So Hot, Buyers Are Paying $1 million over the Asking Price.”
That’s right. In the space of just three months, over 310 homes have sold for $1 million over the asking price.
And 146 new “million-dollar cities” were added in 2021 alone.
“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
“If you own regular stocks, you’re in for a big surprise,” he adds.
“I grew up in a world where you could do extremely well by investing in ordinary companies,” Chaikin says. “It’s how I spent the majority of my 50-year career on Wall Street.
