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Spar Group SGRP : Forgotten Nano Cap Value with Strong Growth

July 31, 2014 | About:
Charles Sizemore

Shadow Stock

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SPAR Group (SGRP) is an international in-store merchandising firm. Merchandising and marketing services to manufactures, distributors and retailers worldwide. They run two divisions domestic and international as part of the services sector and diversified services industry.Domestic and International merchandising services offer onsite store event staffing, product sampling, technology, furniture/product assembly and audit services. Services are provided for mass merchandisers, office supply, grocery, drug store, and other retail outlets.The Company operates throughout the United States and internationally in 8 of the most populated countries, including China and India.

Five types of merchandising and marketing services offered; syndicated, dedicated project, assembly and in-store event staffing. Also, SGRP offers syndicated services which consist of regularly scheduled, routed merchandising and marketing services provided at the retail store level for various manufacturers and distributors. The company was founded in 1967 and is headquartered in White Plains, New York.

Review of the quarter ending 03/31/2014.

Revenue totaled $28 million, a YOY increase of 12%.Further,the Market Force integration and higher international revenue from new contracts in India, Mexico and Japan contributed to the 12% increase.Yet,domestic operations posted lower gross profit margins due to retail sector weakness from several larger clients.

To address the lower margins management is focused on improving business mix towards higher margin services as contracts evolve. Management expects margin improvement as the overall retail market rebounds and improve product mix. At the same time, international results remained positive with gross profit growing over 15% and operating income increasing over 100% internationally.

The Company reported a quarterly net loss of $369,000 or $(0.02) per share, prior year quarterly period was 44,000 or .01 per diluted share.

SGA costs increased 720,000 for the three months ended March 31, 2014 compared to the same period in 2013.Fixed overhead in support of 2013 assets acquired from Market Force affected SGA. Additionally, onetime charge for restricted stock awards granted to the Company's prior CEO. Lastly, Mexico and Japan SGA costs were impacted to support revenue growth for the quarter.

Additional growth opportunities were announced July 8 2014. The acquired Chinese’s assets are projected to increase annualized revenue by 7 million.

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“Company's subsidiary in China, SPAR (Shanghai) Marketing Management Company Ltd. ("SPAR Shanghai"), has completed an agreement to purchase all the business, fixed assets and established merchandising teams of the following three companies in China: Shanghai Unilink Marketing Execution and Design Co., Ltd, Shanghai Gold Park Investment Management Co. Ltd, and Beijing Merchandise Sales and Marketing Co., Ltd. (collectively, "Unilink"). As consideration for the purchase, Unilink will receive cash and 20% ownership in SPAR Shanghai. At closing SPAR will have 51%, Shanghai Wedone Marketing Consulting Co. Ltd (its current local investor) will have 29% and Unilink will have 20% of the SPAR Shanghai ownership interests.”

“Unilink is devoted to providing integrated marketing services to its clients in China. Over the past decades, Unilink has worked with brands that include McCormick, Clorox, BIC, Shiseido, Meiji Dairy, UHA, COFCO and Bright Dairy. Unilink's established merchandising teams executed more than 300,000 in store visits annually, currently covering almost all hyper markets, supermarkets and convenience stores in Shanghai and East China, Beijing, Guangzhou and Shenzhen.

Some of SPAR Shanghai's existing clients include Coca-Cola, Apple, PUMA, and Johnson & Johnson. SPAR Shanghai provides a broad range of merchandising, in-store promotion, store auditing, mini-road show services, POP material design, creation and production services.”


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