A slowing Canadian economy is a tough environment for clothing retailers, but Le Château Inc. has been navigating through the turmoil amazingly well: In its second quarter results, released on Monday, the retailer reported that earnings leapt almost 56 per cent over last year, beating analysts' expectations. It also reported rising sales and better profit margins. Oh, and it raised its annualized dividend to 70 cents a share, a 17 per cent bump.
What's not to like? In short, nothing - but as good as its performance has been, Le Château might not be able to dodge the impact of the economy indefinitely. That is why Adam Clark, an analyst at BMO Nesbitt Burns, is sticking to his earlier recommendation and target. He's upbeat: He maintained an "outperform" recommendation on the stock, with a $16 price target. But he isn't exactly betting on bigger and better things ahead using the second quarter results as a guideline.
"Despite the earnings beat and the fact that earnings are up approximately 35 per cent in the first half of fiscal 2009 in a very challenging environment, we are maintaining our earnings-per-share estimates of $1.50 and $1.70 for fiscal 2009 and 2010 to reflect our concerns over the potential macro headwinds in the second half of 2009," Mr. Clark said in a note to clients.
On Tuesday afternoon, the shares traded in Toronto at $13.99, up 49 cents. So far this year, the stock has fallen 4.5 per cent.