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Chasing Bruce
Chasing Bruce
Articles (4)  | Author's Website |

K-Swiss... Running to Value

November 15, 2011 | About:

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Rating: 3.7/5 (12 votes)


Fekafiemd premium member - 5 years ago
Excellent information...thank you
Adib Motiwala
Adib Motiwala - 5 years ago    Report SPAM

Interesting post. Here are my thoughts from looking at numbers on M*. I am just commenting based on a glance at the numbers. You know the business better....

1) Sales have been declining since 2006..5 years is a long time. Smells like a value trap. Gross margins have been declining as well. Another smell.

2) The last time they had operating profit was in 2007 with $400 million in Sales. They certainly need to increase sales a lot (from $200million) before they will generate an operating profit unless their cost structure has changed? Does management guide as to what sales they need to turn an operating profit?

3) While balance sheet has $30 million excess cash, the burn rate is $20 million a quarter. As you said, pretty soon they will have to borrow money / issue equity...possibly at poor terms.

4) I see the stock cheap on a book value and P/S basis. But, I am not seeing any signs of a turnaround from the numbers. I have invested in a cylical crappy business but when the cycle turns in that business, its very profitable. This one seems like a bad business and ill managed as you said, but also needs a turnaround. Just seems like a lot of negatives.

As Buffett said, time is the friend of a good business and the enemy of crappy business. So, a turnaround in a crappy business in the best of times..sounds like a lot of risks. However, maybe the potential upside make up for these risks ?

On a different note, SKX is similarly cheap on P/S and P/B

And ill throw in another faddish Shoe company. Heelys (HLYS) is trading not only below book value...its trading below cash and has negative enterprise value. Its cash burn rate is only $2 million annually and it has $60 million in cash...

Hey maybe one of these will turn into the next Crocs (CROX)
Chasing Bruce
Chasing Bruce - 5 years ago    Report SPAM
hi Adib - there is no question that there is turn around risk, and the investor really has to have faith in the management team. i look at this as a dud or a 5x... one or the other - and it is a small part of my portfolio as such.

management says they need $300M in sales to break even in 2012.

As for HLYS, i have looked at that as well - they are getting killed by cheap chinese replicas. "Healy's" doesn't have any brand value in my opinion. 8 year old kids don't care if they have Healys or the cheap knockoffs.

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