Mr Nierenberg, Why congradulate me. You took the big risk and probably a lot of stress. I would not like to have bought big at 11 1/2 and 8 1/2 and then again at 6 plus. The 6 plus may have been easier as you probably had significant more insight about this company than the average investor. Still, defending the 11 1/2 purchase when the stock hit 6 has got to be stressful. So it is you who are to be congradulated for having patients and confidence. There were lots of naysayers to shake ones confidence. The strong buy came from a southeastern regional firm. There are two analysts following the stock and it is above 10, I would imagine there will be more in less than a year if the earnings stand up. I assume that the effective cost of money is less when a property is sold, leased back and debt is paid off? Otherwise why sell and leaseback at this time, unless it is to prepare for further expansion in the near future. I was in Turkey for three weeks. The cost of food is at least half of our cost. I belive their minimum wage is one fifth of ours. The service was outstanding. I suspect it is cultural. The worst meal I had was very good. I was more than pleasantly surprised by the overall experience.
It is not really nonsense. Although there is probably no problem, it would be serious if there were. For example, if I increase inventory by two million dollars in one year, I correspondingly decrease the purchases expense and accordingly overstate profits by two million dollars. In the case of LTUS it would have wiped out all of last years profits and more. However, I doubt that the CPAs are so lax as to let that happen in any substantial way and for Mack or Quall to conspire with others to such a thing is out of the character Nierberg subscribes to them. These are long term participants without a prior record of corrupt activity. All said it would still be good to have the question answered. Those items that make up inventory are easily disclosed. Perhaps mgmt does not want to get started down a path of answering these questions. But, this was an unusual situation. Did anyone notice that LTUS was above 11 for a short time-shhhhhh, don't say a word or it might go away. I have to leave now and throw some salt over my left sholder. I'm not superstitious, but I do get a little nervous when good fortune happens to quickly. Perhaps they will take the good thing away. Wait a minute, there aren't any bullies when it comes to stock prices, are there?
I'm not an accountant, but I didn't think cost of goods sold were accounted for in the way you describe. In other words, inventory items aren't expensed until consumed, correct? And inventory turnover in the restaurant business must be pretty short, so you just stop buying so inventory depletes (but it's only expensed at that time so there is no distortion). It's not like Boeing have 10 unsold aircraft, is it?
I guess what being said is that LTUS may be lying about it's cost of goods sold, which could be acheived by not expensing inventory when consumed, thereby making inventory grow, when it really isn't?
herbinla: Didn't I hear correctly at the annual meeting that Qualls said the main increase in inventory was due to the new distribution center back east? That was my understanding and I am prepared to live with it. Inventory could also be construed to include more non-food items.