SSI stock has dropped 20% today after Stage Stores Inc (NYSE:SSI) announced it is shifting to an off-price business model.
Stage Stores, a Houston-based department store company with locations across 42 states, unveiled its plans to convert to an entirely off-price business model through its Gordman’s subsidiary, which will also lead to the closure of about 40 stores across the US. Since a 2017 acquisition of Gordman’s following its bankruptcy, Stage Stores has been gradually progressing its conversion strategy, turning 98 department stores into off-price stores. The company expects to operate approximately 700 Gordman’s off-price stores by Q3 2020. SSI stock is down 20% to $1.50 today.
“We are excited about our future as we fully transition to an off-price business model,” said Michael Glazer, CEO, of Stage Stores Inc. “Since 2018, we have converted 98 department stores to off-price, including 17 small-market conversions which are grand opening today in Michigan, Pennsylvania, Ohio, Kentucky, and Tennessee. Compared to their performance as a department store, off-price conversions have consistently delivered higher sales with less inventory, similar retail margins, and lower SG&A.”
While Glazer makes a strong case for the company’s conversion strategy, promising higher sales off reduced inventory, investors in SSI stock have clearly greeted the plan with skepticism. SSI stock had made sizeable gains in recent weeks having posted positive quarterly results at the end of August, proof that the company’s shift towards an off-price model can represent positive returns for the company. However, the company is still struggling under the pressure of a net debt figure of $298 million USD.
Stage Stores had appeared to be heading towards bankruptcy as brick-and-mortar retailers continue to struggle to compete with major online retailers; however, the 2017 acquisition of Gordman’s and the pivot towards an off-price model represents a high risk/high reward situation, with some analysts predicting the move could represent a situation whereby SSI stock either gains 100%+ over the next two years, or goes to zero.
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