financial
financial

Coldwater Creek's Hedge Fund Appeal

Wall Street believes hedge funds are looking to make some retail plays, and the shares of specialty chains such as Coldwater Creek Inc. could stand to benefit, according to some analysts.

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Looks from Coldwater Creeks summer 2008 catalogue

Looks from Coldwater Creek's summer 2008 catalogue.

Photo By WWD Staff

Wall Street believes hedge funds are looking to make some retail plays, and the shares of specialty chains such as Coldwater Creek Inc. could stand to benefit, according to some analysts.

"The company once had a $4 billion market capitalization and was trading in the mid-20s. People realize there is potential for earnings to recover and the ability for store growth if the merchandise is right," said Mark Montagna, retail analyst at C.L. King & Associates.

Coldwater Creek has a strong financial position and is taking initiatives to drive earnings. The retailer is poised to cut inventories 15 percent a square foot by the end of the year, and is planning for a 20 percent stockkeeping unit count reduction by the second half of 2008. It is also working to reduce promotional levels. The discontinuation of the Spirit line, which was tested in 33 stores, could eliminate a distraction for the buying team.

Montagna believes the company is capable of returning to 5 percent operating margins despite a tough economy.

"It makes sense to bet on that, considering where the price is now," he said.

Coldwater Creek has had a tough stretch since the fourth quarter of 2006. Shares of the company were trading in the $5.48 range as of April 4, better than the 52-week low of $3.40, but more than 78 percent off their high of $25.69.

In fiscal 2008, the company reported a loss of $2.5 million, or 3 cents a diluted share, from a profit of $55.4 million, or 59 cents, in the year-ago period. For the period ended Feb. 2, sales grew 9.2 percent to $1.15 billion from $1.05 billion.

"Hedge funds are looking to play retail. It is the first sector generally to jump out when the economy turns around. So hedge funds will look for familiar names that can shape up quickly. Coldwater Creek is one of those names that will lead the charge and have a few quarters of numbers blown out of the water," said Eric Beder, retail analyst at Brean Murray, Carret & Co.

Chairman Dennis Pence bought 2.4 million shares from Jan. 24 to Feb. 1, bringing his holdings in the company to 15.1 million shares, or 16.5 percent of shares outstanding. Montagna said Pence was comfortable enough with the expected finances to make the purchases.
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