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  • jtmaimi jtmaimi Dec 14, 2009 9:50 PM Flag

    Sell company or Replace management!

    Dressbarn, Anne taylor, Chico's all doing well now. The stocks are way up. I think this company should put itself up for sale or get someone in there that knows what they are doing.

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    • The same morons are in charge and all they have done is lose money and get sewed for stealing trade secrets. It's been a nightmare for everyone involved. It's like there are no adult business people involved in this company. Cache should not be a public company because they are not worthy.It is a sad sad state of american business.

    • 100% agree.........actually Chs with their WH/BM stores would be an ideal candidate to buy them out......interesting also that Cache just pinched one of WH/BM merchandisers to improve their selection...

      • 1 Reply to minbran
      • Chico’s would be a great company to buy Cache, the management is clearly stronger at Chico’s. Cache’s management team just keeps making the same mistakes over and over again. They discount the merchandise 50% and then complain that they don't make any money. It's ridiculous! Someone needs to step in and take charge of this company. I’m surprised that big shareholders have not been more proactive.

    • No problem, Just quick comment to add something to my previous messages:

      You know, i like management team. They have been very conservative and you see that when you look their balance sheet and other actions they have taken. Many of their competitors have over expanded their store base last years, and lock up to rent rates, what was in many cases uneconomical.

      They have managed company somewhat different manner, they have utilized last three years almost $40M stock buybacks (75% today’s Market cap), quite attractive prices and that will give huge boost in future, for company’s intrinsic value per share basis.

      Of course there is something what I don’t like in this company, like modification of compensation plan what went throught in last meeting, changes (deeply downward revised exercise prices) was more than generous, it was gift. And slower pace on share buybacks, in times when there should be more opportunistic and collect all shares what Mr. Market gives away for free. But no one is perfect.

      And like I said; in earlier message:
      “Ranni: Don’t let accounting earnings mystify your judgement. You should look cash flows.”

      If you listen last 3Q conference call carefully, it will give you clue:

      (38:50) Analyst asks: “House keeping question, how much your inventory was down per square foot and how much you planned to be down in Q4?”

      Caché’s CEO: “We don’t have those calculations right here, but like Maggie said earlier: it will be pretty consistent. The levels won't change significantly… we are very excited to keep them lower… err we are not excited about it, but I think its right thing to do… “

      http://www.opencompany.info/interface/view/calendar.cfm?p=5&k=5&tickerlist=CACH

      I’m excited too what comes to inventory levels ~$19M (Q4). You have to go back, more than decade (1998) to be as low at dollar basis. I think "leverage" to generate sales couple next years is almost twice what it was 1998. One would say, they have been more than conservative what comes to accounting. ;) But I like that.

      Who knows what will happen in future, but if you look their:

      Balance sheet & cash pile (68% of Market cap).
      Reduced share count with buybacks +16M -> 12,7M.
      Cost cutting actions +1.14$ (per/sh).
      Inventory levels are lower than ever in this decade (dollar basis).

      To put it simply; I would say, they have better days ahead.

      Disclosure: To give some clarify, for my earlier "load up the truck" comment, i have to say this is not just talk the talk; at this point I have accumulated more than 31k shares. I think its very rare opportunity to buy so well managed company like Caché at these prices.

      I hope you understand, i have some difficulties to write english.

      Please, feel free for comment.

    • Three years later and 20 million in losses the big boys finally decide to do something. If they had listened early they could have saved 20 million. Andrew Saul is an arrogant incompetent. Micheal Price saved this company from bankruptcy.

    • Ranni,

      Your English is very good! I understand you completely. I agree with most of what you have said.
      I like the fact that they are conservative too. They are doing some prudent things. Thanks for pointing out the inventory status. I guess that could help eventually in the future if the economy turns around.
      On the other hand they bought most of the stock back at high prices and stopped buying it back at low prices. I believe they bought a lot at around $14 a share!
      They bought back very little at low prices.
      They invested very little of their own money in the company. They have little skin in the game. They leave it up to the generous compensation plan.
      They were so quick to discount at Christmas the missed the major shopping done in the last two weeks of December.
      I guess you are right about nobody being perfect. It is just tough to see their competitors like Chico’s, Dressbarn, Ann Taylor, J Crew doing so well in this environment.

    • please this management needs to be replaced

    • Rammi, Thank you for showing me the link. I was able to listen to the call again. It helped me to listen to it again. Thanks.
      I agree with you about chasing competitors that are doing well now. It is to late now that there stock prices are up 4 to 5 fold since the march lows. I guess some deserved this kind of appreciation and others do not. I’m just surprised that Cache was not rewarded much for the prudent steps they have taken.
      I’m not to sure about their new strategy of becoming a fully integrated company. From now on they will design and produce the majority of their products. This means that they will have to use American workers to produce all the products. The sad fact of this is that American workers haven’t been able to compete with foreign workers for the last thirty years. It is not economical to even try to compete with them. The main disadvantage is labor costs. In America the average hourly cost might be $18 while overseas the cost is $2. There are many other expenses that American companies have that foreign companies do not have. For example, Health care costs, insurance, higher taxes. This is why most textile factories have moved overseas. It a simple fact, American textile factories can’t compete with overseas factories. Sure they got a 7% increase in gross margins for one quarter, but how long can that last? It will not be long before the high costs of operating a factory inside the USA enter into the picture.
      I’m like you, I’m not an expert on women’s fashion, I just know retail in general. I simply go by the numbers. It really is not that important because the experts get it wrong much of the time. The proof is, if the experts got it right all the time they would not have staggering losses.
      It is encouraging to see the founder still buying shares at these levels.
      One comment you made I take issue with is “even if retail environment stays soft they should be able to stay in black”.
      They may be in the black on strictly a cash flow basis and that is fine but in reality they are in the red. If things remain stable for the next three years they will have a stock holders equity loss of 12 million a year totaling around 36 million. That would only leave about 25 million in net tangible assets. It might even be hard to keep their doors open.
      This unfortunately is very possible. The economy before was based on false profits provided by a housing bubble and home equity loans. Americans used their houses as ATM machines. That is history and now banks are cutting peoples credit. There is no more free money here in America. People are not in the same position they were in over the last decade. I don’t see what will bring a recover in the future.

      On the other hand, if the general economy is to improve dramatically and Americans become rich again then Cache will do very well. I guess the true issue we face is the state of the overall economy.
      I bought 25k shares last year for an average price of around $2. I’m holding them for a while to see what happens. I think this company could be bought out by another company for much higher prices. It would make sense economically. It is a very good candidate in my opinion.

    • Message part 3/3: (stock market performance and management team)

      “jtmaimi: I agree with you about chasing competitors that are doing well now. It is too late now that there stock prices are up 4 to 5 fold since the March lows. I guess some deserved this kind of appreciation and others do not. I’m just surprised that Cache was not rewarded much for the prudent steps they have taken.”

      I feel exactly same way; this kind of underperformance has been huge disappointment for me. If we look 2, 3, 5 year track record, Caché is worst in class. Of course soap is ready when you see that company’s management is ready to modify their performance metrics (to gift more compensation). They have forgotten most important reasons why people own marketable securities. Marketability must presuppose not only a place where they can be sold but also an opportunity to sell them at a FAIR price. This is reasonable requirement and they have failed to deliver it.

      If we look performance under current CEO (since Jan. 08), we are still -55% underwater. I think he cannot (shouldn’t) be satisfied either this kind of performance.

      “jtmaimi: I bought 25k shares last year for an average price of around $2. I’m holding them for a while to see what happens. I think this company could be bought out by another company for much higher prices. It would make sense economically. It is a very good candidate in my opinion.”

      I agree, company would be good takeover target for bigger company or acquired by private equity guys. They would easily pay many times more than today’s $ 30m enterprise value. If that’s the case, like I believe, it means management hasn’t done their job too well. This depressed market price indicated that company is worth more without current management. Your written subject “Sell company or Replace management!” is rational proposition.

      I have considered why we haven’t heard any activity in takeover or buying side. Two reasons comes my mind. Poison pill which they have in place and other is major owner/founder who may be unwilling to sale; maybe we have still too concentrated ownership structure. Without these I think this would be already acquired, if we keep in mind how this has traded enough long time about prices what they have cash on books.

      All that said, I still think if management is really starting to take actions to create value for shareholders, they would be able to extract lot more value from stock market than private markets where deals are today generally closed somewhat moderate prices.

      The reasons I believe stock market would be still be better place owners of Caché, even we have traded cash prices already way too long time.

      * Relatively illiquid stock
      * Growing sales trend (after shrinking enough)
      * Lots of “rocket fuel” on books

      These can be “sick” combination, like history has proven. ;)

      ps: Lets keep writing occasionally, when new information or something comes to mind. Thanks!

    • Message part 1/3: (vertical integration + earnings power)

      jtmaimi, Thanks for your response!

      “jtmaimi: …they will design and produce the majority of their products. This means that they will have to use American workers to produce all the products. The main disadvantage is labor costs. American textile factories can’t compete with overseas factories”

      I don’t know am I missing something, but you know, we see this ongoing transition to vertically integrated company very differently. I understand your concern about cost of American worker and the fact that you cannot compete with Asian or other countries in NOT too sophisticated works like apparel manufacturing.

      But if I understand correctly, they have hired new talent to their designing and merchandise management side to NYC. All apparels are manufactured in more cost efficient countries somewhere in Asia or South-America. I think its quite common strategy if you look their competitors.

      I would liquidate my position if they would try to do something so desperate (as manufacture textiles in USA). I don’t know is there possibility that even bigger retailers could compete that way?

      Of course this kind of transition when they are starting to produce own merchandise will take time; before everything is running smoothly. I think, this transition to vertically integrated retailer started three years ago, when they acquired AVD. But, I understand your concern; it start to be time to show some results.

      “jtmaimi: Sure they got a 7% increase in gross margins for one quarter, but how long can that last?”

      I think this 39.5% gross margin is still depressed and it will bounce back more normal levels quite soon.

      “jtmaimi: They may be in the black on strictly a cash flow basis and that is fine but in reality they are in the red. If things remain stable for the next three years they will have a stock holders equity loss of 12 million a year totalling around 36 million. “

      Don’t worry about these kinds of scenarios. My calculations say that they will do just fine in next years; I see in this case $ 36 million is big number, but not much more. I think those cost take outs are running somewhere $ +1.2/share and that’s just sick when you compare their EPS history. Of course its hard to say, how they will tick up when sales levels rise, but one would think some part of those are permanent (not variable).

      If you take hard look what $ 36 million losses consisted, I would say, it is much better when all that crap is swiped out of books, and some of those off-balance sheet items (severance costs etc) are also behind. They could do this kind of “cleaning” over longer period of time and shamble forward, but as investor I like, when everything what former CEO had left behind Is cleaned away, so quickly as possible. Often short term pain is inevitable, when trying to achieve maximum long term gain.

      “jtmaimi: That would only leave about 25 million in net tangible assets. It might even be hard to keep their doors open.“

      And that’s true there is not much tangible assets left, but that’s one reason why I like this business. It’s not too capital-intensive that means they should be are able to earn nice return for invested capital and market place should give some credit for that. When we consider what is going on when tangible equity is shrinking I would say, most critical question is, is this unintentionally or meant to happen. And when you reduce outstanding share count ~22% above book value (and inventories too), it is clear you shrink your tangible equity at same time. We cannot muddle this kind of development with companies which are really bleeding cash, because their of distress situation.

    • I will continue my monologue to give just quick comment related yesterday’s conference presentation.

      No single word of buybacks, maybe they are progressing in their untapped plan? It would be good reason to be silent.

      They have controlled inventory even tighter manner what I first estimated. $ 16.5M and that’s amazing. You have to go back years 1995 – 1996 to be as low at dollar terms, and of course Caché’s sales potential is doubled – tripled from those days. I have all reasons to believe, in next two years they will be successful in their objectives, turn inventory much faster.

      Like I said, even I disagree some capital allocation decision with management team and there is some unanswered questions (like, why buy high $ 14 not low $ 2 – 4?) I still repeat my statement, I like management team and I think, that we Caché’s owners are in good hands. They have long proven track record.

      It is still some what difficult to understand this disparity, between price and value. How Mr. Market can be so blind over longer period of time. I agree 2008 capitulation for owners was rough blood bath, and many would still shy away?

      I would estimate that, when we break out 7.8$ levels we would be back on the radar (+100Mcap), when peoples are trying to find some undervalued investment opportunities.

      Predicting future can be dangerous. If I have to place bets like I definitely have done, I would predict that next two years Caché will be one of the best performer retail stock, by wide margin. You understand the point, it is not best company in industry, but disparity between price and value is so huge.

      warning: fasten your seatbelts, this rollercoaster is ready to fly upward.

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