A Retailing Match Made In Chapter 11

The recession has pretty much clipped the wings of most retailers, so it's not surprising their shares have fluttered downward. But Cascade International, a small specialty retailer of upscale women's apparel, cosmetics, and designer fragrances, has more than bucked the trend. The stock has nearly quadrupled, to 8 1/8 from 2 3/4 in January.

Some smart-money investors who have been buying in recent weeks insist that Cascade isn't about to run out of steam. They say that over the long run, earnings should exceed analysts' current expectations. Why? A big boost from Conston, an operator of 260 women's clothing stores in 28 states and the District of Columbia, which posted sales of $117 million last year. Cascade acquired a 64% interest last August--two months after Conston filed for Chapter 11. Conston quietly emerged from bankruptcy on May 14, when a bankruptcy court approved its reorganization plan.

Cascade has installed new, experienced management at Conston, and Conston's old vendors have started shipping merchandise to the company. Bets are that better results at Conston will fuel a surge in Cascade's earnings. Conston more than doubles Cascade's present network of some 180 boutiques located in New England, California, and Florida.

SMALL STEP, BIG BOOST. Jim Awad, president of BMI Capital, expects Conston to at least break even on sales of some $140 million for the year ending June 30, 1992. "If management can realize even a slight profit, it would be a substantial incremental boost to Cascade's earnings," says Awad, who notes that a net margin of 3% would contribute about 15~ a share to Cascade. Cascade's high-margin Jean Cosmetics unit, which designs and makes cosmetics, fragrances, and skin-care products, will especially benefit from Conston's many outlets, says Awad.

So far, Cascade has had strong growth. Its 1987 revenues of $15.8 million grew to $52 million by 1990. They're expected to climb to $60 million in the year ending June 30, 1991, and to $70 million in fiscal 1992, when Conston's contributions should start kicking in. Per-share earnings grew from 18~ in 1987 to 41~ in 1990.

Analyst Bert Boksen of Raymond James Associates is also a Cascade bull. He expects it to earn 54~ a share in fiscal 1991 and 70~ next year--excluding Conston's contribution.

"Despite Cascade's heady climb, the stock is still very undervalued based on the company's snappy growth prospects," says Awad. The stock's 27% return on equity, plus the company's low price-earnings ratio of 11, "make Cascade one of the hottest bargains around," says Awad. He figures the stock could double in 6 to 12 months.

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