Wednesday, November 2, 2011

Syms Is Bankrupt.

Today, we learn that Syms is going bankrupt. I view this as a mixed bag of news, bordering on the line of great news, for the following reason:

"The filings today are the result of a process that has been taking place for several months. Our board has conducted a rigorous assessment of all the strategic options and alternatives available and after careful consideration has come to the conclusion that a bankruptcy filing and liquidation is the best way of maximizing value for all stakeholders," -Marcy Syms

From what I gather from this quote, it means that a liquidation valuation is in order. Going on the article that I wrote earlier, it seems that there could be room left for appreciation in the stock price, provided that this is an orderly bankruptcy. Often times, clothing in liquidation sales doesn't go for what said clothing is on the books for... At least they are going to be liquidating in the most favorable time of year to do so: the Christmas shopping season, where people are generally pretty price insensitive, meaning that they may recover more than they would have, in say, July.

Somewhat ironically, what was Syms' greatest operational weakness, may turn out to be one of their greatest assets in bankruptcy: constantly declining same store sales. Landlords may be happy to for Syms to leave their buildings due to how terribly the operations were going for Syms. After all, a landlord wants good tenants that draw people to their properties (which is especially true in strip malls). They generally loathe struggling retailers that almost constantly have double digit decreases in same store sales. Here is some info on leases in bankruptcy... Again, a net gain for Syms, I would argue. Plus, we have the advantage of them already getting out of several leases before this filing.

All this said, at least we in the US have access to (arguably) the best bankruptcy system in the world; it is quick, generally fair, and efficient. Here is my favorite book about the process (with some case studies, that really do shed some light on what may happen with Syms).

There is also the issue of how much each location will bring in whatever manner they are sold off in; allowing time for properties to be listed versus auctioning them can yield very different results. Some of the stores that are owned, are already leased out to third parties (like Bed Bath and Beyond), which, should provide the company with cash flow to operate in corporate. I would imagine that these would be able to be sold off at a favorable cap rate for Syms, as Bed Bath and Beyond is a much stronger company that Syms ever was.

Here are the articles (1 & 2) where I outlined the tax record values for every piece of real estate that the company owns... And that doesn't value the Trinity Store in Manhattan at much of what it is likely worth. Obviously, the company has the potential of distributing more to shareholders than their precent book value.

In light of these facts, if the company only gets out of it's real estate the value that is on it's books in PP&E, and sells it's inventory for 2/3 of it's book value, then, you only go on the remaining tangible book value, shareholders are at a break even point as far as the present value of their shares go. There are obviously a ton of different variables to look at here (some of which were outlined above). But, it might be a good starting point for you to draw your own conclusions.

I fully expect more lawsuits, especially since the company failed so miserably and has mad so many shareholders mad, that I can only expect them to be chomping at the bit for a bit of revenge. This is especially true if the recovery is less than book value. The company may be trying to cover it's back here, as if the issue comes up in court, they can say something to the effect of "You sued us in the past since we weren't good operators. Now that we are liquidating so that we can not be retailers, you are suing us again... You are like ambulance chasers just digging around for cash!"

If I thought that management was good enough to operate a REIT, I would suggest that, but, then again, maybe not.

Personally, my disappointment exists on two levels. First and foremost, I feel for the employees that are losing their jobs solely due to management's incompetence and no fault of their own. Secondly (more tongue in cheek, and not nearly of the same gravity of people losing their livelihood in a time of high unemployment), I am upset that I will likely never get back the book that I left at HQ for Ms, Syms to sign and mail back to me to have as a souvenir of sorts from the research and trip to the annual meeting that I made (where they confiscated my cell phone)... By the way Ms. Syms, since I am betting that you are reading this, I would still appreciate getting it back.

The real fun here, is that we will see how accurate I was when I said that the company was worth more dead than alive.

The bottom line is this, shareholders should receive something.

Oh yeah, almost forgot, here is the filing for your reading pleasure:

syms bankruptcy

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.


Anonymous said...

Great blog.

What is the advantage of declaring bankruptcy for Syms? My impression is that most companies in their position would just announce that they are liquidating.


jeff said...

Bankruptcy gives them a lot more leverage for getting out of their leases.

jeff said...

BTW, thanks for reading.