The old RFP (Abitibi-Bowater) was laden with debt. RFP is not. That makes a world odf difference. History will NOT repeat itself here. Certainly anytime soon. This is a $10-15 stock in 8-18 months. They just RAISED newsprint prices a month ago. Supply is being rationalized.
Sentiment: Strong Buy
I've been trading it, in and out a number of times over the last couple months. No loss here.
I think the 8.4% means nothing, with gross margin dollars subtantially DOWN. They are not running the business right. Traffic is up, but average ticket is flat or down slightly. People are finding more "bargains," and coming back more often....but they are not buying ENOUGH MORE, to move the needle. Basically, the "broader and wider" strategy, with "better bargains right off the bat," has added to costs, and lowered initial markup. They are, simply put, running in place, or spinning their wheels. They have NOT found a successful merchandising strategy, and the fact that all the other things that Rouleau did to improve operations (which he deserves credit for) have NOT helped them enough to boost profits, shows that the business model continues to be a very challenging one. No, they are not going bankrupt, over night, and yes, they should be able to continue to achieve marginal profitability.....but every single effort to make this thing "work," many of them quite valiant and laudable, has effectively resulted in "pushing on a string."
Your "he could sell it for $9-10" is pulling a number out of a hat. The fact that a premier guy like Rouleau failed, means that any other private equity guys who want to take a swing at the thing would want to pay, in my view, no more than $6-7 for it. Becker's massive buying in the low $5's is certainly interesting, but I'm going to trust myself here. I want to see if these bad results, and poor guidance for the near term, bring out significant sellers from the old "suckers," who are still around, that were lured in by Rouleau's outrageous, and totally misplaced, bombast.
Fair value is $5-6.50. We are in the middle of that range. And near term, unless Becker supports it, it could drop to $4.00-4.50. I will continue to view this as a "swing trade" stock, on any material breaks below $5. Weak hold/mild sell.
It would seem with the unlevered free cash flow here, and how remarkably stable the figure has been over the years, that they would be able to find someone willing to lend them money at 6-8%, no?
That is true. But there is clearly NO turnaround here, yet. Becker is willing to have faith in himself, that he can turn it around. But, for now, it is dead money between $4.25 and $6.50, imho. I'm a buyer in the low $4's.
Melissa Phillips: With the hard work that our buying teams did earlier this year in preparation for the season, we were able to drive strong execution on all of these strategies and provide our customers with a steady flow of great product at compelling values.
Commentary: Earth to Melissa! Does it matter how "hard the work" was, of the buying teams, if there was a decline in operating margins, increase in markdowns, and lower initial markups? Wouldn't it be better to talk about who you FIRED from the "buying team"? How is it "strong execution" if you had unforeseen expenses and problems in getting this merchandise to the stores? How is it "great product at compelling values," if your operating margins deteriorated like they did. Hello??! Is anybody home? Also, I strongly suggest toning down the use of the term "our teams." It sounds too "rah rah." Just talk about the company's results matter of factly. No cutesy stuff.
Melissa:...and we are all laser focused on positioning this business for long-term success...
Commentary: This kind of claptrap is a very bad sign, and a mark of no confidence. Confident managements will say "We are highly confident in our ability to achieve marked improvements this year." Being "laser focused" is not about actually achieving anything, and it evidences an embarrassing form of using language that is "trying too hard." "Positioning this business" is very very weak, mambi-pambi phraseology. "Long term success" implies they DON'T REALLY KNOW whether they will be able to turn things around....or WHAT THEY NEED TO DO to make it a success....or WHAT WOULD CONSTITUTE success. WEAK! "This business" implies she takes NO OWNERSHIP. How about "our business" or "the business" or even just "Tuesday Morning"?
Becker: As we have consistently said, this year will be of investment and you are seeing evidence of this in both our gross margin and to a greater extent in our SG&A expenses in Q2.
Commentary: Well, you have been CONSISTENTLY saying that for at least the last 3 years, since your predecessor, Michael Rouleau, came on board. The fact that 3 full years into a "turnaround," you are STILL talking about a "year of investment," is evidence that the turnaround efforts, to date, have FAILED, since overall gross margin dollars are essentially UNCHANGED, from where they were, in the few years prior to Rouleau taking over. Same store sales growth without growth in gross margin dollars is FLIM FLAM.
Becker: Along with these one-time transition expenses these relocated stores also generally have higher rents associated with the better real estate. But the improved sales productivity justifies the increased cost.
Commentary: Oh really? Why not document for the Street just how much you are improving operating profits, on a store for store basis, with the moved stores, versus the additional operating expenses. Because the way it appears now, the relocated stores are part of the reason the company is realizing significant same store sales increases, WITHOUT moving the needle on gross profit dollars.
Becker: The decision to move to our broad and shallow strategy accelerated the need to rework our supply chain with plans for a new West Coast distribution center a key initiative.
Commentary: You have yet to prove that the additional distribution and store level costs, of having more sku's, will ever be offset by adequate additional gross profit dollars. And the "higher markdowns" and "lower initial markups" you mention in the current quarter, suggest the strategy has ABJECTLY failed. Or you need new merchandise buyers!
I have to agree. Not sure how many shares are short, but any rally here could be absolutely ferocious, since the thing is totally taken for dead, even though they have plenty of liquidity (for now) on the balance sheet. Just getting oil prices back to $50-60, along with getting the Highlander out on lease, should allow them to get some new leases out, and reduce the quarterly cash burn to a much more reasonable level of single digit millions, probably. The bondholders, now equityholders, are not going to walk away from these assets, if we are "on the other side" of the oil price decline. And a "deal" amongst OPEC, to take 1 million barrels a day off the market, would get the market to "supply rationalization" almost instantaneously.
Sentiment: Strong Buy
Higher markdowns, and lower initial markups, is more of the same bs. The same store sales increases mean NOTHING, if gross margin dollars are down as much as they are. Operating expenses much higher. AZ distribution center delayed.
I'm not convinced that Becker won't be changing his mind, and waiting for the low $4's before buying more. (One wonders if he regrets his purchases in the low $5's.) I suspect you will see MORE of the institutions that loved this as a "darling" growth stock throwing in the towel.
I think it's "dead money" between $4 and 6, for the rest of this year. Possibly $5 and $6....but only if Becker continues to support it in the low $5's.
There is a very real question, which becomes ever more larger, which each passing quarter, on whether there really is any NICHE left for this company. I believe it is marginal at best, and they are destined for low to mid single digit ROE going forward, which a continued slow erosion in their ability to earn even those kinds of returns.
If Becker can find someone to buy it out at $7 or higher, I think he should take it.
There are definitely better buys out there than this one.
I don't think so. I think Christmas was ho-hum. This is a great swing trade stock, and selling at $6.25-6.95, and buying at $5.75 and down seems like the right strategy for now.
True. I believe the SEC can go after executives who routinely cancel and reinitiate plans, if such actions are clearly evidencing bad faith....especially if plans are "cancelled," with material nonpublic information being held, which "benefits" the insider, in the cancellation of the plan. The upshot is that insiders need to be VERY careful when cancelling a plan, "during" quiet periods, or while in possession of material nonpublic information (like Christmas sales results).
Does anyone have access to the actual plan he filed? Is it on Edgar somewhere?
I agree. I added some also. The risk here, with the credit modifications, is suddenly DRASTICALLY reduced. And that should be immediately priced in to the stock. But it wasn't, because the market was down so much. 2016 is a "transition" year. 2017 EBITDA will be significantly higher. This stock is pricing in enormous financial risk, that just doesn't exist. Insiders own like 25% of the company, and the founder bought a lot of stock in the open market, the last few months. My own expectation is this will be a $4-5 stock, in 2-6 months, and $6-10 in 12-18 months. Meanwhile, it could be an easy buyout candidate....if they can just show that they can maintain positive cash flows. This is one of my TOP FIVE stocks right now.
Sentiment: Strong Buy
Mind you, i look at Becker's buying as huge. He bought 2% of the outstanding over just a few trading days....or over $5 million worth of stock!
Unless they changed the rules on these plans, they inherently encourage insider trading. Why? Because a plan can be put in place, prior to an executive's having insider knowledge....but the plan can be canceled at any time for any reason (like in order to avoid losses, if the fundamentals have deteriorated). Unless, again, the rules have been changed.
I thought it was cheap enough at $6.75. The price, relative to net working capital, book value, historical prices, and historical earnings, is insane. Insiders are buying material amounts in the open market here.
Sentiment: Strong Buy
It's pretty clear from the actions that they announced, that risk has been DRAMATICALLY reduced here....and the stock price deserves to trade up, commensurately. Specifically, $7.5 million in annual expense reductions, and their taking the option to exclude operating losses of NextRadio, etc., from covenant EBITDA calculations, puts the company in a much more secure place, that should allow shareholders to sleep easy at night. In addition, they have a chance of seeing some solid politiical advertising this year...and they are talking about anniversarying the new competitor in L.A., within a couple quarters, so stabilization at a known and quantifiable "lower level" can now be established. Meanwhile, their actions to replace the guy in charge in New York mean that/those stations have a good chance of improving their performance....while Jeff talked about radio, overall, expecting a smidge of GROWTH in 2016. Perhaps most importantly, NextRadio, and the other new ventures, add not only venture capital type "sex appeal" here, but with the expectation of being in ONE THIRD of the phones in the United States (based on the carriers they have ALREADY signed up) , the possibility of some real ad and other revenue starting to kick in later in this calendar year is not to be dismissed. (Yet, the Street essentially values NextRadio at NADA, based on Emmis's current EV.
Finally, we have seen the CEO express interest twice before in taking this company private, and with the way the marketplace values radio, the miniscule market cap here, and the "friends in high places" the CEO has evidenced that he has, one would think that offering the shareholders a premium of, say, $1.25 a share, would be a scenario that could garner the support of a "majority of the minority." (I, as a roughly 1% owner of the nonaffiliated shares, would be in support of such a move.)
It will be interesting to see if any insiders start buying this in the open market, when the window opens up.
Sentiment: Strong Buy