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Body Central (OTCQB:BODY), a young women's apparel retailer, has brought in experienced management to affect a much needed turnaround. Body Central has been a disaster: falling comparable store sales and ugly earnings preannouncements. The new CEO plans on clearing out inventory and starting fresh. He's got the right idea. In my last trip to the mall, I found Body Central to be an appalling mess of badly displayed merchandise. The previous crew was clueless as to why comparable store sales were falling - a simple visit would have found the answer among the racks of jumbled goods. The new CEO, Brian Woolf, has articulated a plan to improve this retailer, focusing on presenting the customer with a less cluttered, easier place to shop. Woolf has strong credentials. Before taking the CEO position, Woolf was President of Lane Bryant. A picture is worth a thousand words: Visit Lane Bryant and then walk over to Body Central. You go from a well-thought out shopping experience to an unappealing hodge-podge. Body Central could benefit from a little more Lane Bryant.

There are a number of positives for Body Central going forward:

1. The retailer has no debt and $41 million in cash. The balance sheet is strong. Current ratio is an impressive 2.3.

2. Body Central has been profitable in every one of its quarters since the IPO.

3. This 276 store chain is still expanding although they are wisely putting the breaks on new stores.

4. Price/Sales is an attractive 0.5. PEG ratio is 0.5.

5. The new CEO is incentivized to succeed. He has an option to purchase 300,000 shares of common stock and 150,000 shares of restricted stock. For the details, look here. He has been involved in ladies apparel his whole career. In addition, the company brought in experienced merchandisers from Sears, Maurice, and Lane Bryant.

6. Body Central has an appealing concept of edgy young women's apparel. The problem was awful execution and merchandising. The bad actors have been kicked out. This apparel chain is banged up but not ruined.

The risk/reward: Not long ago, Body Central had a PE of 19 to 20 and earned an average $0.90 a year (3 years average). Should management execute a turnaround, yearly earnings of $0.90 might be in the cards, a PE of 18 isn't out of the question and the stock might be worth $16. Not a bad return if the turnaround works.

All in all, the balance sheet is good, the stores are still profitable. Body Central needed adult leadership. It just got that.

Disclosure: I am long OTCQB:BODY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Source: Body Central: Turnaround Story