Forum Archive Index - February 2002

["Chris Castle" <c.castle@paradise.net.nz>]

Hi Snoopy - don't know if you saw it but in a recent column (16 Dec last) I
covered this stock and raised similar issues.

Reproduced below in part in case you didn't see it

"This week there were interesting announcements from Arthur Barnett and
Kirkcaldie & Stains, two companies that represent a dying breed - publicly
listed department stores. Previously listed household names like Haywrights,
James Smiths, The DIC, and Beath & Co are now long gone, swamped by the
waves of change that have swept across the retail sector in the last 25
years.

Their successors, chains like Farmers and Deka, are themselves under siege
on two fronts. They face fierce competition from specialise retailers such
as Hallenstein Glasson, Hannahs, Michael Hill, and Dick Smith.  And they
face an even sterner test from chains like The Warehouse, now seemingly able
to sell almost everything at prices no-one else can match.

Despite this incredibly competitive retail environment, good old-fashioned
department stores like Invercargill based H & J Smith, Arthur Barnett
(Dunedin) Kirkcaldie & Stains (Wellington) and Smith & Caughey (Auckland)
seem to be surviving OK But these companies are special cases  - it's
evident each is an integral part of the community they serve and they have a
loyal customer following that will stay with the store, often from
generation to generation.

Founded in 1863, Kirkcaldie & Stains ("Kirks") achieved full stock exchange
listing earlier this year and it's well known that there is a strong
correlation between the shareholders and customers of this Wellington icon.

Kirks is obviously confident enough of the support of these stakeholders to
have announced a major acquisition and equity fundraising this week. It is
has entered into a conditional contract to buy the building next door, the
Harbour City Centre, for $29 million. The purchase will be funded by
existing cash reserves, bank debt and a 1:2 underwritten rights issue at
$3.50 per share that will raise $8.75 million.

In financial terms, this is quite an aggressive move for Kirks - sales last
year were $35m, the company's market value is $25m and net assets are only
$26m.

It can only be assumed that the directors have formed the view that future
growth would be constrained by the size of the existing premises and this
expansion will solve the problem.

Interestingly, the building being acquired once housed one of the flagship
stores of Dunedin headquartered DIC, the formerly listed chain of department
stores that was acquired by Arthur Barnett Limited in 1988.
......................(the rest of the column was about Arthur Barnett)

That was written in early December.

Since then I've become aware that the new strategy, which I agree completely
changes the risk profile of the company, is probably being driven by the new
CEO.
The expansion itself makes sense, the existing premises are not ideal -
there simply isn't enough room and there isn't even air conditioning. An air
bridge is logical, as is gradually taking over space in the Harbour City
Centre as it comes free. Whether they had to buy the property themselves to
achieve this expansion is another issue altogether.

I think investors are bailing primarily due to the rights issue - not
because of the change of direction - many are Wellingtonians fiercely loyal
to the company and they will be selling only because they can't afford to
take up the rights. Interestingly, Kirks director Murray Doyle, one of the
most astute and well connected investors around is an underwriter of the
issue.

For these reasons I'd see the current weakness in the price as an
opportunity rather than a problem.

Disclosure: none held (despite my optimism for the company).

Cheers

Chris C (The Examiner)


----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Tuesday, February 19, 2002 1:32 AM
Subject: [sharechat] The Kirk's Recapitalisation


> I always have a question mark over small emerging companies, but
> Kirks isn't exactly the new boy on the block.  It's a Wellington icon
> that has been around for years and is one of the few retail outfits
> that seemingly hasn't been drastically impacted by the rise and rise
> of "the Warehouse".
>
> I haven't been 'shopping' at Kirks for years (not living in
> Wellington being my excuse), but I do know people in Wellington who
> if they want quality clothing  will automatically go there.  I guess
> despite the era of cheap imports, Kirks still has a name that counts!
>
> I did however, have a brief wander through Kirks in the weeks leading
> up to Christmas.  Stock piled high and people scrambling everywhere
> to buy it was my impression!   Kirks have sold their own building and
> are concentrating on their skills as a retailer, turning over stock
> at good margins.   I think the market likes this.  When a company
> 'swims against the tide' it makes me sit up and take notice.  I
> remember the demise of rival traditional department stores, the DIC
> and James Smiths, but it doesn't look like Kirks will be going the
> same way.   Also catching my contrarian eye as the retail wave has
> been sweeping the country is that Kirks is one company that, in share
> price terms, hasn't caught it.
>
> I suspect the cash issue is the answer as to why Kirks is going in
> the other direction.   But one thing I don't understand is this.
>
> Having got out of property by selling their own building, why are
> they getting back into it again by buying what was the DIC next door?
>   I understand Kirks are short of space, so are they going to kick
> out some of those boutique shops next door and build an aerial
> walkway between the two buildings to try and link the two stores?
> That would make sense but in the interim they risk being judged not
> as the retail company they were, but a property company.   The
> dividend is almost certain to be slashed as they fund buying the
> building next door.  Who is it they are buying that DIC building
> from, and why couldn't they just lease the space they needed?  We
> know that property companies generally trade near or just below asset
> backing, so what does this say for the direction of the Kirks share
> price?   As yield investors bail out my instinct says the Kirk's
> share price is heading south, but then I am not a Wellingtonian on
> the spot.   In the light of my comments do you have anything to add
> on this 'penny dreadful' ;-) Chris?  SNOOPY
>
>
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "Sometimes to see the wood from the trees,
> you have to cut down all the trees."
>
>
>
> --------------------------------------------------------------------------
--
> To remove yourself from this list, please use the form at
> http://www.sharechat.co.nz/chat/forum/
>
>
>


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/