How are the cash cost of goods sold for cars sold pursuant to the lease program (and therefore counted in deferred revenue) accounted for? Lease cars were ~$170mm of ~$600mm revenue, so leasing is a big driver of results.
i.e., when the car is sold pursuant to the lease deal, the revenue and any accrual costs flow through the income statement on a pro-rata basis based on the lease term, but the all the cash (since the company collects 100% of the price of the car upfront) flows through the cash flow statement in that period.
Logic would suggest all the cash costs flow through the income statement in-period, and therefore the lease accounting hurts GAAP profitability by more than just the impact of not taking into account the full revenues and costs of the sale/lease transaction. Since the company does not release a full cash flow statement with earnings, it is difficult to tell.
An important related question: what portion of total COGS are cash COGS?
Risk/reward has changed considerable since August '12 events....initial investing thesis based on strong historical free cash, low EV/EBITDA multiple, rock solid balance sheet, growth through new store openings. All this has changed.
* Mgmnt says different customer today (younger, less affluent) than 2012 means historical financials (fcf, EBITDA) are less relevant to assessing future opportunity
* Company is structurally unprofitable ...with 20% gross margins and SGA well above 20% (even after 11% cuts) company is locked into operating losses until they figure out how to get the old customer back or make money with new customer.
* 2Q gross margin story was 'aggressive promotions to clear inventory for 3Q' and now abysmal 3Q margins are explained as being due to aggressive promoting to clear inventory for 4Q. Explanation lacks credibility the second time in a row and casts doubt on company's ability to increase gross margins before the clock runs out. Speaking of which...
* Balance sheet strength eroding considerably...one more bad quarter and stock will have a financial distress penalty instead of premium for balance sheet strength (premium arguably gone after 3q results)
* No buyout possibility as company spirals down. Cannot lend with no cash flows.
* Has anybody here actually visited the stores... can we crowdsource a report (with pictures, feedback from speaking with associates about who shops there, other obsservations) on a statistically significant (more than 30) number of store visits? I've read some reports here of poor conditions in stores but I would like to have something more reliable. I will compile all responses and share here to the extend anybody send me reports.
* Disclosure: long at $6.80, closed out this am for big loss at $4.30. Will re-assess getting long again,