Neal St. Anthony/On Business: Grow Biz shares rise
Neal St. Anthony
Published Oct 23 2001
Shares of Grow Biz International have doubled recently to
$10. But there is a skeptic among those witnessing the share
price surge at the born-again franchishor of Play It Again
Sports and other retail concepts.
It's straight-talking CEO John Morgan, 60, who came out of
early retirement 16 months ago to become one of the largest
shareholders and to lead an overhaul of the once-bloated,
money-losing company.
"I'm not a stock pumper," said Morgan, who expressed mild
surprise that at $10, Grow Biz shares are trading at a
price-to-operating earnings multiple of about 20. "I think the
stock is overvalued in the short-term, but long-term we think
there's a story."
Morgan said, "Investors should know this is a long-term deal.
This is still plenty challenging. We're still shrinking the
company."
Still, insiders have been buyers in recent months as the stock
ran from $5 to $10. Insiders sell for lots of reasons. They buy for
one: They think the stock's headed north.
Grow Biz shares had sunk from $15 to $5 in the five years
ended Dec. 31, 2000.
Grow Biz, which was expanding rapidly but losing money in the
late 1990s, last week reported net income of $2.6 million, or 48
cents per share for the first nine months of 2001, vs. a loss of 19
cents per share a year ago.
The third-quarter results include a 9 cent per share gain on the
sale of the flagging Computer Renaissance retailer.
Regardless, investors in the lightly traded company are starting
to notice the positive swing.
Morgan, 60, started the former Winthrop Resources in 1982
with several other former Data Card executives. He sold the
public company for nearly $350 million in 1996 to TCF
Financial, and retired to a life of leisure and philanthropy.
"I flunked retirement, though," Morgan said.
He doesn't play golf. He and his wife sold the California house
to get closer to their Minnesota-based grandchildren. And
Morgan, who is active in local and national charities, hankered
for another business interest.
With Grow Biz, he got more than he'd bargained for.
In early 2000, former board member Sheldon Fleck recruited
Morgan to buy a big stake of flagging Grow Biz from
then-CEO Jeff Dahlberg. Morgan and long-time partners
Kirk MacKenzie and others in their Rush River investment
partnership bought 780,000 shares from Dahlberg for $6.39 per
share. They have since increased their stake to more than 1.3
million shares, or about 25 percent of the company.
Ron Olson, another founder and shareholder, left the
company and the board amid differences with Morgan last
year.
Morgan found the company in deeper trouble than he thought.
Several businesses were bleeding cash, the result of letting some
franchisees expand too fast. TCF Financial, nervous about
deteriorating business and a weak balance sheet, called the
company's $15 million loan. Franchisees were getting a
recording instead of support service when they called.
"I was not at all happy after I got here," Morgan said. "The old
culture was obsessed with process, committees and graphs and
charts. We're results oriented."
Morgan cut the corporate staff in half to about 90, closed
unprofitable stores, sold the Golden Valley headquarters for
$4.5 million and leased back only half the space. The Rush
River partnership loaned the company $5 million.
Morgan restocked the board with MacKenzie, 62; Paul
Reyelts, 54, the CFO of Valspar and a long-time
acquaintance; businessman/lawyer Mark Wilson, 52; and
Jenele Grassle, 41, a Target veteran who is a merchandising
executive at Wilsons the Leather Experts.
He hired Steve Briggs, 44, a finance and operations executive
from Valspar, as president and chief operating officer last
December.
Today, the balance sheet has no long-term debt, the company
is generating strong cash flow and is poised to grow prudently
its Play It Again Sports, Once Upon A Child, Music Go
Round and Plato's Closet retail businesses.
They all rely on used merchandise sold to franchisees by
customers for 25 to to 95 percent of their merchandise.
"We have the fundamentals in place," Briggs said. "We're a
prudent-investment culture. We're not afraid to spend money.
We have good retailers. And how many retail concepts give the
'customer' a chance to sell something."
The biggest growth bets are on Plato's Closet, which has grown
from 25 to 46 stores in the Midwest this year, including several
in the Twin Cities. It sells slightly used, brand-name clothing at
steep discounts to a female-oriented clientele aged 12 to 24.
It's headed by Rebecca Geyer, an eight-year veteran who also
runs 233-store Once Upon A Child.
Morgan, a guy known for his disdain of shareholder-paid jets,
country club memberships and similar perks, has aligned his
interests with stockholders.
He was paid only $50,000 as CEO in 2000. The board bumped
his pay to $100,000 this year. He also was given 600,000 option
shares early this year. They vest over five years and are
exercisable at the issue price of $5.
At $10 per share, Grow Biz is at its highest point since 1998.
"We have great franchisees, small business people who love
retailing," Morgan said. "These are fun businesses."
Metris takes exception
The stock of Metris, the big credit card issuer to the working
class and credit-impaired, has been trading around $22 per
share, up from a recent bottom of $20, but down from its
52-week high of $39.
The Minnetonka-based company reported third-quarter
earnings last week of $70.7 million, or 70 cents per share,
compared with 52 cents per share in 2000, and in line with
analysts' expectations. The company still is forecasting
full-year earnings of up $2.60 per share, a 25 percent-plus gain
over last year.
But Metris is getting hit with shock waves created by its
imploding peer group -- and some skepticism from critics who
contend Metris is letting its reserves for doubtful accounts
erode in order to prop up current income.
On Friday, the shares of rival Providian Financial fell more
than 50 percent after the biggest lender to people with low
credit ratings posted lousy third-quarter results, warned of a
fourth-quarter shortfall and announced that it's shopping for a
new CEO.
Ron Zebeck, Metris CEO since its 1994 inception, is irate with
Peter Eavis of TheStreet.com, who's accusing Metris of
letting down its guard.
Bull, says Zebeck.
"We've tried to answer TheStreet.com and he won't listen,"
Zebeck said. "The short interest in our stock continues to go up.
We look forward to the day when the shorts have to cover their
positions.
"Our charge-offs [for non-performing loans] are down. We've
stayed close to the business and our customers. We've been
conservative."
Zebeck said Metris reserves totaled 8 percent in the second
quarter and 8 percent in the third quarter -- far more than
most of its competitors. "We're comfortable. Our reserve
position as it relates to our peer group, whether MBNA or
Capital One or Providian, at 8 percent, is double the reserve
level of the closest one to us."
Char broiled
Some members of the Burger King marketing department --
now headed by former Northwest Airlines executive Chris
Clouser -- really got burned this month in team-building
exercise as they walked barefoot over an 8-foot strip of
white-hot coals, the Miami Herald reported.
About a dozen suffered severe burns that required medical
attention.
"We certainly didn't intend for that to happen," Burger King
spokesman Rob Doughty told the Herald.
The charcoal-walking event concluded a daylong retreat,
designed to help motivate the marketing department's
employees for the challenge they face in turning around the
struggling Burger King brand.
In addition to the fire walking exercise, Burger King employees,
including Clouser, used their bare hands to bend spoons, break
boards, smash bricks.
Clouser, a pal to the Pohlad family, also was a short-time CEO
of the Minnesota Twins in 2000. He left NWA in 1999 and is
one of several former Red Tail executives who joined former
Northwest CEO John Dasburg at Miami-based Burger King.
Clouser has said Burger King is going to pull out all the stops in
generating excitement for its fast-food fare and promotions.
But the company is done with fire-walking exercises.
Neal St. Anthony can be reached at 612-673-7144 or
Nstanthony@startribune.com.
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