Here's my synopsis on the Hudson deal based on what management has said in the conference call:
"Reducing sourcing cost is also a major opportunity for both companies. To put the opportunity in perspective, doubling the size of our company would put our combined input cost into making a jean that's over $100 million. We can easily recognize -- realize significant cost savings across all 3 components of making a jean, namely, fabric, trends and labor. Sheer size alone will provide us with significant leverage with all the vendors we use or plan to use in the future. The savings don't stop there. Equally important, utilizing just a small piece of our cross-border manufacturing can produce significant cost reduction. Garments using our cross-border manufacturing capabilities could see up to a 30% savings."
Let's say they can get a 10% savings on COGS. For JOEZ alone that would have added over $6 million to the bottom line last year. That's roughly $.10 per share times a market PE of 15 or an additional $1.50 in share price. Assume Hudson gets the same savings then you have another $.10 in earnings - good for a $3.00 increase in share price.
"Upon completion of the transaction, we will have nearly doubled the size of the company across all metrics from revenue down to EBITDA. We're purchasing 100% of the company for just under $98 million."
JOEZ generated $12.2 million in EBITDA last year. Assuming the same for Hudson that will MORE than cover the debt service on whatever financing they use. It is cash and convertible debt at 10%. Even it is ALL debt at 10% that is $9.8 million per year interest costs - which will be covered by the Hudson EBITDA with cash flow left over.
This is all subject to final clarification of the deal details but if it is true that all metrics double and the expected cost savings materialize it would seem that this is a very positive deal that should support a MUCH higher market capitalization and corresponding higher share price.
Good post. Yes, CGS is HUGE for this company. That is evidenced by the numbers this past quarter. Too much Vintage Reserve had to be done in the US so CGS went from 53% (Q212) to 56%(Q213). If that would've stayed at 53%, they would've had 3c earnings, and we wouldn't be having this great buying opportunity.
I like your numbers, if they can move the needle even a few percent in CGS, then EPS will really take off.
Just look at Joe's Jean earning report, they miss badly and I don't know if this relating to weather or jean over saturated market. Customer have many choice to pick jean, I expected Joe's Jean to keep loyal customer happy and they failed. IMO, they brought Hudson to save face, I wouldn't be surprised to see Joe's Jean get hit with restructured charge as competition get more fierce as time goes on. I used to say Joe's Jean will open 5,000,000,000 stores in 10 years because of loyal brand getting stronger. I was wrong.