Parlux has to have good sales for the holidays.If sales are poor they will not be able to get financing to build inventory for next fall.They might have to raise capital by issuing shares if this is the case at an attractive price to the buyers,dreadful dilution.Hopefully,it will not come down to this but that is the risk that I see if the banks will not lend to them after the holidays.
You are partially right. PARL needs to have a good holiday season to obtain a line of credit against receivables AND inventory. This is the type of facility that PARL wants for a variety of reasons.
At the end of the fiscal year, PARL will likely have between $15 to $20 million in cash after repaying Regions and paying vendors down to a more normal level. If PARL needed additional cash beyond that for prepayment of royalties in connection with say a Madonna signing and to build R and JZ inventory then they could factor AR. They could probably receive 75 to 80 cents on the nonrelated party AR $. This is the scenario that would play out if the banks would not lend to them.
It sounds like they will be cutting back on advertising substantially as compared to last year.
If they cut by let us say 30%,can they break even on only 50 million in sales or less?They also have cut administrative expenses compared to the prior year so that will help.In other words based on margins of about 50% how much would they need to sell to break even?The reason I used 50 million or less is in case Christmas is worse than expected and department store returns are high.