Y2K remediation effect on 1999 earnings:
According to ARCI's 10-Q's, they incurred and expensed the following amounts on Y2K remediation in 1999 as of mid-November filing:
99Q1 $36,000
99Q2 $102,000
99Q3 $55,000 (+ $74,000 litigation payout expensed)
T3Q: $193,000 out of $260,000 Y2K total cost, some of which will be capitalized (purchase of new computer stuff).
Thus, by end of Q3, ARCI had only about $67,000 left to spend on Y2K.
Assuming forward diluted shares of 2,290,000 or so (after the Q3 share issue in settlement of litigation---read 10-Q), these expenses which will be gone in 2000 will represent cost reductions (and thus earnings increases) of:
99Q1 $36,000/2,290,000 dil shrs = $0.015 per share
99Q2 $102,000/2,290,000 dil shrs = $0.045 per share (+ $0.032)
99Q3 $55,000/2,290,000 dil shrs = $0.024 per share
That's $0.084 per share ($0.116 with litigation payout savings) additional earnings we should expect in 2000 from absence of these one-time expenses ALONE.
Higher same store sales and more efficient retail network (only 6 stores for all of 2000 vs 7-8 in Q1,Q2 1999, and therefore lower costs for ENTIRE CY2000 vs only 2H99), combined with Y2K savings, plus absence of the $74,000 litigation expense ($0.032 per share) on 2,290,000 dil shrs, means a substantial jump in 2000 EPS vs 1999.
1999:
Q1 (0.23)
Q2 0.11
Q3 0.22
Q4 0.10(e)
CY 0.20(e)
++ 0.116 Y2K/litigation payout savings
========
$$ 0.316 CY2000 EPS without any additional earnings growth, UP 58%
But I would think 15% same store sales growth and streamlining done in 1999 could drop at least $0.04 per Q to bottom line:
Example-- 99Q3 Retail $2.1M, UP 15% in CY00 = $315K xtra, 1/3 to bottom line = $100K add'l profit, $0.046 per share, which excludes lower cost stucture in 00Q1,Q2 vs 99Q1,Q2 when ARCI had 7-8 stores vs 6 by 99Q3.
Assuming $0.046 * 4 Q's = $0.184 + $0.116 from Y2K/litig svgs = $0.30 EPS extra over 1999's $0.20(e).
Thus:
1999 EPS = $0.20(e)
2000 EPS = $0.50(e) UP 150%
Same store sale up 15%(e)
You can still buy ARCI for $1.25, which appears to be 2.5 times 2000 EPS, and under 0.18 times revenues per share, under 2 times book, which should keep rising to $1 or more as we progress.
What a gem.
Long ARCI from $0.60-1.25. CY2000 TARGET: $5, or 10 times EPS.
This looks like an easy 10bagger from $0.60-1.25 over the next 3-5 years. Thank you Peter Lynch for showing me how (One Up On Wall Street, and Beating the Street). |
