Summery
When I first find this company, I am quite excited because I thought I have found the kind of company I am keep looking for. This company is in a unique market. Targeting luxury customers. No strong competitors. Well grows strategies. However, after reading their financial report carefully, I found that their finance result is not very good. That's why they are very cheap now. Generally I like this company and would invest at a proper price.
Analysis.
1. The historic average pre share earning is 25 cents. But this doesn't mean a lot since they are on the market for only 2 years.
2. Book value is only $0.87 pre share.
3. Their current year earning is pretty bad. The first three quarter earning together is -3 cents pre share. A important reason for this is they are involved in a litigation settlement which cost them 0.7m in the first quarter. That money means 14c pre share.
4. It is all about Selling G&A. When I exam this company, I found there is only one thing is really bothering me. In the last three quarter, their selling, G&A expense is lot of higher than in 2006. So I need to figure it out. Let's show the number first:
Q1 Q2 Q3 Q4
2006 5.4m 5.5m 5.7m 7.3m
2007 7.1m 6.6m 6.2m ?
You can see from Q4 2006, their Selling G&A expense is in a big hike from 5.7m to 7.3m. I found out the reason is they had opened a new store at Q3 2006. There are a lot expense related to this new store are gradually down during the last 4 quarter. if we take Q3 2007 number as average number. Then this year, we can deduction ( 7.1-6.2)=0.9 for Q1. (6.6-6.2)=0.4 for Q2. So this well contribute 26 cents to their pre year earning.
They opened a new store at Q3 2007, which I can expect there will be another hike in their Q4 2007 expense. But it will not bother me.
5. I estimate their Q4 2007 pre share earning is at lest 10 cents base on historic data.
Risk
1. Their opening new store strategies doesn't go well. This is not very likely based on their last years new store and this years revenue increase.
Conclusion:
Added all 3, 4, 5 number, their current year real earning would be (-3+14+26+10) = 47 cents. This didn't count their future grows by opening new stores. Based on this calc. I would like to pay up to 0.47x15x60% = $4.23 for this stock. This is much higher than current market price. I will be hurry.
Updated:
Jan. 7 2008
It turns out that I had made a mistake on this stock(DOVR). Luckily I was able to sell my holding with a speculating 7.7% gains. The reason is below:
There is the same problem in VG(Vonage). However, VG belong to another category: special opportunity according the book. So these rules is not important to it. I think I will still hold VG. But probably will not buy the same stuff any more.
1. Its book value is too low and they are working by very high debt level. According to Buffet theory, the price paid should not exceed 120% of a stock's book value. I think I'd better stick to it.
2. Its history on the market is too short( 2 years +) , they have deficit years and don't have any dividend.
The stocking might be a good one. But for sure it doesn't fit my list. I liked their business too much. That's why I neglected all these important stuff. Another reason is I haven't formed these rules when I first assessed it.
Updated:
Mar. 25, 2008
Analysis of Q4 2007 data:
Facts:
1. Per share earning is 0.18. Better than my 0.10 estimation. New store sales contributed to it.
2. G&A of Q4 2007 is 7.3m, the same as 2006. As I have expected, it is much higher than previous quarter.
3. Share outstanding 5.2m.
4. Book value around $1.
Analysis:
1. Take a 6.7m as it is future average G&A number per quarter. Q4 2007 should add (7.3-6.7)/5.2 = 0.12 pre share.
2. If take the new 0.18 Q4 earning and add the 0.12 quarter G&A data. It is real earning in 2007 should be -0.3+0.14+0.26+0.18+0.12=0.67.
3. However, In the near future, they probably hard to achieve this earning since they are keep opening new stores. There will be more expense there.
4. The retail store strategy seems works because usually Q4 is their weak quarter, but it achieve 0.18 pre share earning in Q4 2007 with bad weather last year. ( Aug. 26th: This is wrong, actually Q4 is their strongest quarter because it is the holiday season. Q2 is second strong quarter. Q1 and Q3 are weak quarters).
Conclusion: I think it worthies much more than their current market price( around $4). However, I can't buy it because its book value is too low.
Facts:
1. Per share earning is 0.18. Better than my 0.10 estimation. New store sales contributed to it.
2. G&A of Q4 2007 is 7.3m, the same as 2006. As I have expected, it is much higher than previous quarter.
3. Share outstanding 5.2m.
4. Book value around $1.
Analysis:
1. Take a 6.7m as it is future average G&A number per quarter. Q4 2007 should add (7.3-6.7)/5.2 = 0.12 pre share.
2. If take the new 0.18 Q4 earning and add the 0.12 quarter G&A data. It is real earning in 2007 should be -0.3+0.14+0.26+0.18+0.12=0.67.
3. However, In the near future, they probably hard to achieve this earning since they are keep opening new stores. There will be more expense there.
4. The retail store strategy seems works because usually Q4 is their weak quarter, but it achieve 0.18 pre share earning in Q4 2007 with bad weather last year. ( Aug. 26th: This is wrong, actually Q4 is their strongest quarter because it is the holiday season. Q2 is second strong quarter. Q1 and Q3 are weak quarters).
Conclusion: I think it worthies much more than their current market price( around $4). However, I can't buy it because its book value is too low.
Updated:
Aug. 25, 2008
Q1 and Q2 2008 data, recent price $2.80.
1. G&A data:
Q1 Q2 Q3 Q4
2006 5.4m 5.5m 5.7m 7.3m
2007 7.1m 6.6m 6.2m 7.3m
2008 6.6m 6.3m
2. Book value $0.94
3. Refinanced 5m notes at 14% interest ant end of 2007. Used $8m of $18m line of credit.
4. Income Q1: -0.07 pre share. Q2: 0.05 pre share. Revenue declined a little bit compared to last year. Catalog sales drop while retail sales up.
Updated
Nov. 12, 2008
Q3 2008 data, recent price $1.63. Market cap now only 8.5m. While annual sales around 70-80m.
1. G&A data:
Q1 Q2 Q3 Q4 Total
2006 5.4m 5.5m 5.7m 7.3m 24m
2007 7.1m 6.6m 6.2m 7.3m 27.3m
2008 6.6m 6.3m 6.3m
2. Opened a new store at Georgia at Oct. This might increase G&A expense for Q4.
3. Book value $0.97
4. Total debt 14.3m. Last quarter 12.8m. It is flat compare to last year. Historically, Q3 debt should be higher for seasonal reason.
5. Income 0.03 pre share. Revenue flat. But same store sale decreased by 5.8 percent.
6. Inventory 17.7m. Close to sales of one quarter.
Analysis:
About previous analysis on G&A data, actually it was wrong. For seasonal reason, their Q4 G&A data should always much higher. It is more accurate on a yearly bases. 2008 seems they can reduce the G&A expense by 1m compare to last year. Which seems caused by more store opening at 2007. However, the revenue will decline in 2008 as well.
It is closer to its book value. Glad I sold the stock. According to conference call, they are very optimistic about their business. I think they are doing OK. Wait for the price get close to book value.
Mar. 30, 2009
Q4 and full 2008 data. Current price $2.15.
1. G&A data:
Q1 Q2 Q3 Q4 Total
2006 5.4m 5.5m 5.7m 7.3m 24m
2007 7.1m 6.6m 6.2m 7.3m 27.3m
2008 6.6m 6.3m 6.3m 7.1m 26.3m
2. Opened two new stores at Oct. 2008 and Feb. 2009. According to conference call, no more new stores in 2009.
3. Book value $1.08. Impaired $14.3m goodwill.
4. Totol debt 13.2m. compared to 11m last year.
5. Income 0.07 pre share. Revenue decreased by 6.8% to 21.4m.
6. Inventory 17.3m.
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