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Stock Alert : Stage Stores Stock Hits New 52-week High (SSI)

Shares of Stage Stores, Inc. (SSI) hit a new 52-week high of $6.74 today, which is a giant leap forward for a stock that was perilously close to delisting just a few months ago. In June this year, the operator of specialty department stores got a six-month ultimatum from NYSE to bump up its average stock price above $1, a minimum listing requirement. The stock has been experiencing positive momentum, after raising expectations for fiscal 2019.

Catalysts in play

Decent Q3 - Sales were the highest for any third-quarter in the company's history. Comp sales were positive every month and grew sequentially each month of the quarter. Merchandise margins improved by over 100 basis points. Inventory levels were down more than 3% vs. a year ago. Adjusted EBITDA of $15 million was the company's first positive third quarter EBITDA since 2015 and represents an improvement of nearly $30 million versus last year.

Upbeat guidance for fiscal 2019 - The company now sees full-year sales of $1.64 to $1.67 billion on comparable store sales increase of 7% to 9%. vs. prior projections of $1.56 billion to $1.59 billion and 1-3% increase in comparable sales. In March, when the company initiated FY19 guidance, it said it was expecting sales of $1.59 billion to $1.62 billion, on a 3% to 5% rise in comparable store sales. Adjusted EBITDA for FY19 is now expected to be between $35 million and $40 million, up from prior expectations of $20 million to $25 million, and original guidance of $10-$15 million.

Store-format conversion paying off - So far during 2019, the departmental chain converted 89 Gordmans stores to off-price stores, which had a 40% sales increase vs. their year-ago numbers. So, the full company is converting to an off-price format starting in February of 2020 and about 550 store conversions are expected next year. The conversion timeline is expected to culminate by the beginning of Q3 next year.

Capex to remain steady despite store conversion - To convert each store, the retailer spends about $40,000, resulting in a capital spend of $30 million for fiscal 2020, about the same in the last 2 years. Besides, the company expects to shave off more than $30 million in inventory investments, thanks to lower inventory levels in off-price stores. Full year cash flow is expected to be positive, exceeding $35 million, with a corresponding debt reduction. Store count at 2020-end is expected to be 700 stores, including 40 store closures.

Women's business gaining traction - A challenging Women's business the company's largest single category, began to gain traction in the second quarter, the company CEO said in the conference call, citing refined assortment and off-price buying experience. The business delivered positive Comps for the third quarter.

Amazon counter launch - About 700 Stage Stores provide pickup service for Amazon shoppers. This can lead to improved store traffic, just ahead of the all-important holiday season.

With the holiday shopping season in full bloom, the stock seems to be doing just fine.

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