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  • value_catalyst value_catalyst Jun 12, 2007 4:27 PM Flag

    SHOE thesis; for Koala et al

    Yeah, I am surprised by the move and hope it's not a dead cat bounce. You're right about the cash conversion cycle. I wish the management would take a page out of the book from competitors. It would free up a lot of capital stuck in the business. However, I guess it's part of the trade off for an off-price business model.

    Also, I'm hoping they are managing growth and not biting off more than they can handle. They are adding quite a bit of sqft. I guess we'll get a better sense of how things are going to unfold from the performance of the 20K sqft locations. It's really a judgement call if you think a 20K sqft of shoes is supportable by the surrounding demographic area within the context of competition as well. 10K sqft has worked so I think 20K is reasonable. What's great about shoes are that they are "consumed" pretty regularly, like tires or socks. The market is determined by the rate of consumption (number of shoes bought per year) and the average price. So if they are capturing or creating more of that particular market (off-price) through a bigger selection, then we are in good shape. The sales per sqft of the new locations will give a sense of that.

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