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K-Swiss Inc. (KSWS) Message Board

  • sat208_1999 sat208_1999 Feb 8, 2000 1:03 PM Flag

    sympathy

    ksws is down today due to sympathy. nike put out
    a warning that its earnings will not meet
    expectations.

    this stock will recover, but slowly. why?
    b/c everytime investors get excitied about this co,
    its taken a dive. investors will need time to
    consider this co worthwhile again.

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    • Watch out for inventory writedowns.

    • harvey2U,

      You are absolutely correct, and
      I apologize for this embarrasing error. That's what
      I get for trying to quickly calculate a proforma
      statement in a hotel room when I have to leave for a
      meeting in five minutes lol. Here is my revised estimate,
      which is based on management's guidance during the
      conference call.

      Jan - Jun future orders: $105.7
      mil
      Jul - Dec 1999: $129.7 mil
      Jul - Dec 2000: $64.9
      mil
      Est 2000 revenue: $170.6 mil

      Gross margin:
      39%
      G&A: $50 mil

      Cost of goods (61% of sales):
      $104.1 mil
      Gross Profit: $66.5 mil

      G&A: $50.0
      mil

      Operating profit: $16.5 mil

      Interest income: $2.0
      mil

      EBT: $18.5 mil

      Income tax (40%): $7.40
      mil

      Net earnings: $11.1 mil

      Diluted shares
      outstanding: 10.5 mil (1.0 mil less than 1999)

      EPS
      estimate: $1.06

      Obviously, this is less than my
      original estimate and explains why the stock is trading at
      such a low trailing PE. However, based on even a
      modest PE of 15, the stock still has a fair value of
      about $16, which is 33% higher than the current price.
      Obviously the stock isn't as undervaled as I originally
      believed, but it still has plenty of upside potential with
      little downside risk (IMO). The only way that this stock
      will trade significantly lower is if investors think
      that 2001 will be a down year from 2000. There's no
      evidence that this will be the case, and in fact, the
      strong sell through at the retail level indicates that
      sales should begin to increase in the fourth quarter of
      this year and build momentum again in 2001. I believe
      that the company's strong balance sheet (plenty of
      cash, no debt) puts a floor under the stock.

      I
      listened to the conference call last night but want to
      listen to it one more time before I provide any
      comments. Now that I'm home, I have more time to make sure
      that I don't provide erroneous information lol. My
      apologies again for the previous calculation
      error.

      Regards.

    • Yes, you are probably right regarding the quiet period, though I don't know the specifics. Thanks for the reminder.

    • Good analysis. But, and you too beach, believe
      your eyes and not your ears (I rarely recomend this,
      but KSWS is the exception). Sales $220M, eps $2.35,
      share out at y/e 9800. Q3 & Q4 show positive sales
      trend, ye price $33. However, this won't become evident
      for several months so you have some time to leisurely
      load up.

    • I'm actually surprised there were any
      re-purchases in January. My understanding of the reg.'s is
      that purchases during the quiet period between quarter
      (or year end) close and announcement of earnings are
      prohibited.

      Any CPA's out there current on the reg.'s ??

    • be_richer,

      I don't think 12% is a good
      number to use to calculate net income for year 2000. If
      sales decrease by approximately $100m in fiscal year
      2000, you will see a large reduction in KSWS' operating
      leverage. That basically means that as sales decline fixed
      costs will remain the same (or decline at a much slower
      rate) causing your profit margins to contract. It works
      the same in the opposite direction when sales are
      increasing as evidenced by KSWS in fiscal year 1999. By
      looking at the last three years for KSWS you can see how
      it works.

      year / revs / net income %
      1999
      285.5m 12.0%
      1998 161.5m 7.8%
      1997 116.2m
      3.6%

      Therefore, I believe an 8% margin would probably be a better
      number based on 1998 sales.

      Anyways, I took a
      shot at projecting earnings per share and here is what
      I got. I think revenues for 2000 will be $175-200m
      so I used $185m.

      Revenues $185m

      CoGS
      (@57% of revenues) $105.4

      Gross Profit
      $79.5

      SG&A (@30% of revenues) $55.5

      Operating Profit
      $24.0

      Interest Income $1.8

      EBIT $25.8

      Income Taxes
      (@40%) $10.2

      Net Earnings $15.6

      EPS
      (based on 10.5m shares) $1.49

      Obviously, this is
      significantly lower than what the analysts are predicting, so I
      could be missing something in my analysis. However,
      based on 1998 when KSWS had revs of $161.5m and eps of
      $1.15, my estimate does not seem that
      outlandish.

      Regarding stock repurchases - I was disappointed that KSWS
      had only repurchased 50k shares for the month of
      January. That projects out to 600k shares for the year and
      that is just not good enough. With all the cash and
      the debt capacity they enjoy, KSWS should be
      aggressively repurchasing shares with the stock price at these
      levels. Could they be waiting for the stock price to go
      lower before accelerating repurchases?

      Harvey

    • MSN reports the PE for the Apparel Footwear &
      Access group at 22.5 which leaves even more room.


      Other P/Es which may come into play include:
      KSWS 5
      year P/E average = 33.23
      KSWS 3 year P/E average =
      14.98
      KSWS 1999 average P/E from (average price / earnings)
      = 27/2.99 = 9

    • I read over makemlins earnings estimate, and
      thought the number looked too high, but I didn't take the
      time to go throught the whole thing looking for what
      caused the problem. When I look at the numbers, to
      simplify the earnings estimate a bit here:

      Assuming
      revenues estimated from future orders is $170.6 multiply
      that by the historical 10% increase for JIT orders
      gives a total 2000 revenue of $187M. In 1999 management
      pulled off 12% earnings to revenues, and simlifying all
      the details that would give $22M in earnings. Shares
      outstanding is roughly 10M giving a 2000 EPS = $2.20 which is
      pretty close to the $2.19 estimate by
      analysts.

      There are a few factors that may sway this one way or
      another. I am looking at:
      1) - Stock buybacks. KSWS has
      way too much money in hand with no debt, and they
      will continue their buybacks. I would not doubt if
      they bought back 1M shares in 2000 if price doesn't
      improve. This would sway EPS to $2.44
      2) - %SG&A has
      been improving each year, and if it continues for 2000
      then the 12% earnings/revenue could go up a notch or
      two. If e/r could increase to 13% it would sway EPS to
      $2.43
      3) - The Olympics may help boost demand for athletic
      apparel/shoes, or even better draw institutional attention to
      the shoe sector. Institutions would be crazy to pass
      up this value. I am hoping for a PE boost this
      year.
      4) - Future orders may not be as good a sign of what
      is to come as before since there is alot of concern
      about distributers going out of business. Credit is not
      likely to be extended to risky institutions, and the at
      risk institutions are not likely to overstock with
      future orders. I think this means that the (Future
      orders)/(Overall Revenue) will decrease which makes our JIT
      multiplier above a bit higher. This could pump overall
      revenues up from the estimate made with future orders, and
      move down the chain pushing up EPS.

      The affects
      of the above if they do happen would be cummulitive.
      And, like I said earlier these factors could affect it
      one way or another. If SG&A goes up it'll hurt. If
      buybacks stop there'll be no increase over estimates. And,
      I may have the whole future orders thing backwards.
      It may be all we get this year.

      Any opinions
      welcome.

    • for the apparel sector is 12 1/2. this leaves a lot of upside for ksws

    • From the press release:

      Sales for 1999 -
      $285,497
      COGS for 1999 - $162,658
      Gross Profit -
      $122,839

      CoGS as a percentage of sales (162,658/285,497) =
      57%

      Gross Profit Margin (122,839/285,497) = 43%


      makemilns multiplied 42% times his estimated revenues to
      come up with CoGS instead of multiplying 57% times
      revenues. Either he is anticipating a dramatic decrease in
      CoGS or he made a mistake.

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