Why Mac Frugal's May Be Headed For Richer Times

To some smart-money pros, Mac Frugal's Bargains Close-outs is one of the biggest, well, bargains, on the Big Board, where the stock is now changing hands at $12 a share. No, Mac Frugal's isn't a retailer of down-and-out stuff. It's the new name of Pic 'N' Save, which owns and operates 193 retail outlets selling merchandise from well-known manufacturers at 40% to 70% below regular prices.

The stock was a highflier in 1991, jumping from 6 to 23, when an investor group called Girard Partners successfully waged a proxy fight to oust management. "It could climb back up to the mid-20s," says one investor, who is now buying heavily. He had accumulated shares during the proxy battle and then sold them, he says, when the stock hit 20.

The heavy cost of the proxy battle, the restructuring that followed, and a weak economy hurt first-quarter earnings, sending the stock price into a spin. This investor notes, however, that with the restructuring now complete and a strategy of new-store openings, Mac Frugal's "will beat the Street's currently poor earnings expectations."

WESTWARD HO! Analysts Allan Roness and Stuart Linde of Fahnestock, a New York securities firm, agree. They note that in the first half ef 1992, Mac Frugal's completed the last phase of its reorganization by hiring 100 store managers with extensive retailing experience. They add that Mac Frugal's will be able to purchase new sites at modest prices because of depressed real estate in the company's core Arizona, California, and Texas markets. The "timing appears right" for a more rapid expansion, say the analysts.

They point out that while the riots in Los Angeles damaged six of the company's 64 stores in Southern California and cut May revenues for the entire company by 4.9%, the disturbances caused other retailers in the area to close down. "This gives Mac Frugal's an opportunity to buy property and expand in the area," says Linde. The plan now, he says, is to add 37 new outlets, most of them in Southern California, thereby increasing the number of stores to 230 by 1993.

Roness and Linde say that based on earnings, book value, cash flow, and revenue growth, Mac Frugal's stock is selling way below the shares of such comparable discount retailers as Consolidated Stores and Dollar General. They estimate that Mac Frugal's will earn $1.55 a share in 1993, up from 1992's estimated $1.25 and 1991's $1.12. Eileen Hupp, Mac Frugal's spokeswoman, says that those numbers are conservative.

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