In your post you mention that Home Depot shifted from stocking 150 units to 50-100 units of each item and ask "Does it matter?" The answer is clearly yes.
Home Depot has about 2300 stores. A decline from 150 just to 100 units per item in inventory means a reduction in 115,000 units per item system wide at HD. This is a one time thing, but even if the price per unit sold by UUU to HD is only $2 (and I bet it is substantially higher), that means a reduction is sales during this inventory shift of about a quarter of a million dollars per item. How many items does UUU sell at HD? I do not know, but assuming it is five, then there should be about a hit of 1.25 million dollars to sales. Will this be offset by the two new products? And if HD goes to an inventory of 50 rather than 100 (which would still fit within your statement), the hit would be 2.5 million dollars.
Look, I cannot tell the real impact of the HD shift, and I do not know when it began. I do now, however, that it is important. It wil lead to a one-time down turn in sales.
According to the CEO the new skus's already accepted into HD will offset any inventory related decline. Also another new product line introduction by UUU is coming sometime this fall and may really boost long term prospects. The JV appears to be doing really well and UUU's book which is just under 10 appears to be understated. If the stock stays around here I think they will be bought out at a major premium.
If there is a one-time decline in purchases by HD due to JIT inventory changes which will then be expected to get reversed over the next few quarters, a simple explanation in the PR would be warranted and, if given and quantified in some range, should be understood and accepted by investors as this phenomenon is hardly unique to UUU.
What was particularly impressive to me was this summary in the 10-Q of the JV's results:
<<Net sales of the Joint Venture for the three and nine months ended December 31, 2008 were $9,603,152 and $29,270,914, respectively, compared to $7,949,391 and $23,722,803, respectively, for the comparable period in the prior fiscal year. The 20.8% and 23.4% respective increases in net sales by the Joint Venture for the three and nine month periods were due to higher sales to the Company, primarily for products purchased by the Company for sale to a national home improvement retailer customer of the Company, and higher volumes of sales of smoke alarm products by the Joint Venture to non-related customers in the Australian and European market. The Joint Venture’s management believes that the increases in net sales to the European market were due to increased market share in those markets>>.
Increased market share in Europe is promising and will hopefully continue. Finally, the increased sales were not obtained by sacrificing margin. Quite the contrary:
<<Gross Margins. Gross margins of the Joint Venture for the three month period ended December 31, 2008 increased to 28.9% from 24.8% for the 2007 corresponding period>>
I have recently been buying additional shares, even though I already had a full position, as I believe that UUU is extremely undervalued. If they can earn .12 in (somebody correct me if I'm wrong) the 2nd seasonally weakest quarter, in terrible economic times, this stock is worth multiples of where it is if you put any kind of reasonable multiple on nomalized earnings.
That's right, but clearly it is not going to effect demand bt end-users at Home Depots accross the country. Also if UUU is stocking 50 of their higher price point smoke alarms at every of HD's 2300 locations, then sales to HD would be more than offset.
Next quarter is their weakest of the year due to the Chinese New Year which lowers HK derived earnings. So any number out next quarter will likely be trough earnings for this company. I still expect earnings north of 300K, as this quarter would have been around 500K if they were taxed nominally and declared half of HKJV profit - which they didn't - perhaps due to some accounting GAAP stuff for declaring inter-company earnings. I'm not actually sure how that accounting rule works. Some help?