Is Pic `N' Save A Bargain Basement Buy?

Proxy fights attract investors to companies like bees to honey. Pic `N' Save, a retailer of discounted "close-out" merchandise, was one of the companies that underwent a proxy battle last summer, and some shareholders made sweet profits when Girard Partners dislodged management. Pic's stock raced up to 20 a share from 11 at the height of the battle. But as the overall stock market hit the skids and investors bailed out, the stock dived to as low as 6. Now, some of the big investors have started buying again, pushing the stock up to 13 from 8 in early January.

A new proxy fight is not in the cards, but some pros believe that Pic has become an attractive turnaround stock. They say the management that Girard put in, led by new Pic Chairman Peter Willmott (former chairman of department-store chain Carson Pirie Scott) is committed to enhancing shareholder interests and will take steps to kick up the stock. Girard also brought in Len Williams, a former president of Caldor and Gold Circle stores, as CEO.

"We think management is focusing on two objectives: Cutting debt and shrinking capitalization through a major share-buyback sometime soon," says one New York money manager, who notes that Pic already repurchased 5 million shares in December. He figures that based on earnings alone, the stock could hit 20 this year. "The kicker is that once Pic shapes up, it will again become an attractive takeover target," says this pro.

HARD-PRESSED. Kathy Auslander, an analyst at Brean Murray, Foster Securities, is also high on the stock. Since Pic is flush with about $30 million in excess cash, she says that a major share repurchase is almost inevitable. She emphasizes that Pic operates a profitable niche business: It sells cheaply priced goods. The company operates 191 retail stores in the West, South, and Southeast. Its merchandise includes name-brand apparel, housewares, toys, beauty aids, and health products. Pic buys from hard-pressed producers at prices below wholesale.

Auslander notes that the new management is trying to improve margins by tightening inventory controls and cracking down on pilferage. The company has sold some assets, such as 14 Job Lot Pushcart stores in New York and New Jersey. She figures that Pic will earn $1 to $1.05 in the year ending Jan. 30, 1992, and $1.25 to $1.35 in fiscal 1993, vs. 87~ (before charges) in 1991. If her projections are right, Pic's stock is selling at close-out prices.

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