New Look Eyewear early stage consolidator

New Look Eyewear Inc. (TSX─BCI) brought in results for the third quarter of fiscal ’14 that were mainly in line with Toronto-based analyst Doug Cooper’s own forecast. Mr. Cooper is managing director and head of research for Beacon Securities.

Headquartered in Montreal, New Look sells eyewear, contact lenses, sunglasses, ophthalmic lenses and reading glasses.

This was the third full quarter in which the company got a lift from Vogue Optical, the Prince Edward Island-based chain that it bought in November, 2013. Mr. Cooper is reaffirming his “buy” recommendation. He’s also sticking with his 12-month price target of $27 a share. He writes:

For its most recent reporting period, New Look saw revenue rise more than 54 per cent, while logging adjusted net income of $0.19 a share — an increase of 73 per cent.

Admittedly, this number excludes acquisition costs of $800,000, as well as $200,000 for the amortization of intangible assets from the Vogue acquisition. Our number also excludes $100,000 in stock-based compensation.

New Look’s reported net earnings came in at $0.13 a share.

Still, the company saw EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) zoom more than 103 per cent. New Look also saw its EBITDAS margin rise to 19.2 from 14.6 per cent year over year, giving it operating cash flow of $0.41 a share — an increase of $0.13.

Although the third quarter is typically the company’s weakest, its fourth quarter is typically its strongest.

For its part, New Look continues to shine in the sales column, having racked up nearly $100 million in revenue so far this fiscal year — 10 per cent more than what it logged during all of fiscal 2013. The stronger showing reflects the Vogue Optical acquisition.

Moreover, thanks to synergies from the acquisition, New Look is starting to see better margins.

Year to date, for example, the company has racked up an EBITDAS margin of 19.7 — an increase of 260 basis points year over year. As a result, we again believe that for fiscal ’14, New Look’s EBITDAS margin will hit 19.5 per cent.

Our estimate also reflects the company’s historically strong fourth quarter.

Not surprisingly, New Look’s higher margin has allowed it to pare back its debt, as has its stronger revenue base. Since March 31, 2014, for example, the company has repaid $9 million of its term facility, a full 15 per cent within just six months. Moreover, as of Sept. 30, New Look’s debt-to-equity ratio stood at 1.01; six months earlier, it was 1.22.

As a result of hitting the acquisition trail, New Look now boasts 190 stores. It’s also the no. 2 player in eyeglasses in Canada behind Ontario-based Luxottica, as well as the no. 1 player east of Ontario.

Then, too, thanks to its acquisition of Greiche & Scaff, a Quebec-based eyeglass retailer, New Look should see its consolidated revenue rise by $30 million.

And although we admit the deal will add only a slight amount to New Look’s bottom line in fiscal ’15, we believe it could add a lot more, once Greiche & Scaff’s margins bounce back to normal levels.

In the meantime, New Look continues to make good on its business plan of consolidating retail eyewear in Canada. Indeed, its purchase of Greiche & Scaff was its second acquisition within the past 12 months.

We also believe Ontario is an attractive market for New Look, given that the province is now home to just one of the company’s stores.

We also believe the company is still in the early stages of the consolidation game — a game that could end with New Look itself being bought by a global player.

So, we think that investors who buy the company’s shares will continue to be rewarded.


Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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