The KSWS deal is not unlike Gabelli’s purchase of Caribou Coffee (CBOU) in December 2012, when the coffee company was offered $16 per share in cash. At that time, Gabelli said of Caribou Coffee, “We think it’s statistically undervalued even at $16.”
Maybe KSWS is undervalued, but here are three severe warning signs issued for KSWS by GuruFocus: K-Swiss has a low Piotroski F-score of 3, declining revenue per share for the last five years and a declining gross margin averaging 6.1% per year. K-Swiss’ deteriorating performance, as viewed in its extended cash conversion cycle, has consistently generated losses for the past five years. Poor performance from business management resulted in high SG&A (selling, general and administrative expenses), as much as 48.4% of total sales in 2012.
What does Mario Gabelli see in the global footwear sector at large and KSWS whose price is close to a one-year high of $4.73, and whose P/S Ratio (0.7557) is also close to one-year high of 0.7557? The answer may be that the athletic footwear industry has experienced growth globally over the last five years and is anticipated to reach $51 billion by 2017. Key factors are major sporting events such as the 2014 FIFA World Cup and the 2016 Olympics in Brazil.
Additionally, the Asia Pacific region is forecast to have the highest growth in athletic footwear retail in the next five years. Why? Increasing levels of household income are injecting the performance footwear market in every economic tier of emerging Asian countries.
K-Swiss competes in the athletic footwear industry against much larger companies Nike and Adidas. K-Swiss purchases lifestyle and performance footwear from independent manufacturers located predominantly in China. For a KSWS and Competitors Comparison of 10-Year Historical P/E ratios:
KSWS data by GuruFocus.com
Founded in 1966, K-Swiss Inc. designs and develops athletic footwear for sports use, fitness activities and casual wear. In addition to the K-Swiss brand, K-Swiss also designs and manufactures all-terrain, adventure footwear under the Palladium brand. K-Swiss sells primarily in the U.S., and Asia Pacific, Europe and Africa, to specialty athletic footwear stores, pro shops, sporting goods stores and department stores.
Take a look at the 10-year financials of KSWS:
KSWS data by GuruFocus.com
While anticipated global sporting events can present major opportunities for the performance footwear sector, will K-Swiss continue net losses? After the World Cup and the Olympics, maybe we’ll better comprehend the K-Swiss conundrum.
Here’s a look at Mario Gabelli’s recent Top Buys, Top Sales and Top Holdings:
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