TREND-LINES is the specialty retailer that runs the Woodworkers' Warehouse and Golfday names. The former was primarily a nationwide catalog operation until they started moving to a retail store format a few years ago, so far mostly in the Northeast, though they also have the Post Tool stores in the Southwest. They are expanding their stores rapidly, adding 25-50 each of the past few years. Revenues have grown accordingly, about 25% annually, though profitability has suffered from various causes. First, the tool business is highly competitive and the superstores have some impact on margins on common tools (Skilsaws, power drills). They have a price-match policy, which means they have to sell generic stuff cheaply. They claim, however, that they aren't worried about the superstores, and even locate stores near HQ and HD to benefit from the traffic, knowing their selection will draw customers. My local store in fact did just move across from our local HQ. Secondly, as far as reduced profitability goes, there have been growing pains, and some fiascos, such as a bungled launch of a new distribution center, and long delays on setting up an Internet sales site.
Fundamentally, the company is in good shape, though less so than six months ago. Net working capital (cash, AR, and inventory minus all debt) is about $1 / share. There is no long term debt, but about $65 million in bank borrowings. Sales are about $23 / share, and growing. Stock price yesterday was $2.
Today we're up as high as $5.
Any speculation, thoughts, ideas?
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