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From Street.com (JDEC discussed at end of article)
Herb Part 1: Has Salton's
Story Finally Cracked?
By Herb Greenberg
Senior Columnist
5/5/00 6:30 AM ET
Fried-Day:
Great quarter-greatquarter-greatquarter ...
GUYS!!!: That was pretty much the way it was on
Salton's (SFP:NYSE - news - boards) conference call
Thursday after the company (known best for the George
Foreman Grill) reported yet another record quarter.
Sales of Foreman grills, alone, were up 98% last year.
So, why gripe?
Because here's a company that
has been boasting every quarter
about how it can't produce enough grills to meet
demand, and now CEO Leonhard Dreimann (in passing,
as if it's no big deal) says that sales of the Foreman
grills at some department stores "are flat and in some
cases down 20%."
Flat to down 20%! As if that's something to brag about?
Dreimann explained that the sales slowdown was the
result of an expansion of Foreman products into an
additional 5,000 stores "that didn't exist in the March
quarter of last year." He quickly added that sales at
some discounters like Target (TGT:NYSE - news -
boards) and Sears (S:NYSE - news - boards) were up
more than 20%. Up 20%.
Pretty impressive until you take a closer look: Last
quarter Foreman products accounted for 50% of sales,
up from around 35% (based on what the company has
said in earlier quarters). Translated, that means sales of
non-Foreman products have only grown around 6% from
a year earlier, and the company is relying more than
ever on a product that appears to be cresting. How can
anybody say a product whose sales last quarter grew
98% is cresting? With most hot retail products the first
sign of a cooldown is when prices start falling and/or the
products start showing up at deep discounters, like
Costco (COST:Nasdaq - news - boards). Salton doesn't
allow discounting on the most popular Foreman grills,
but it's troubling when distribution has been expanded to
every nook-and-cranny (including the corner drug store --
seriously!) because it suggests the company is pulling
out all stops to keep the momentum going.
However (and this is the important point), at the same
time sales at what had been its core selling points --
department stores -- are falling.
Dreimann even gave a head's up of sorts about what the
company's excuse will be if it's forced to disclose that
biz isn't booming: "It's an election year," he said, "and
we don't know what the consumer will do if the stock
market doesn't continue to perform ... or if interest rates
... these are uncertainties that hang over everybody's
forecast."
Finally, he gave the ultimate clue that he may be
worried: He publicly picked a fight with short-sellers,
who have been haranguing the company since the stock
has been much lower. "This month ... leads us to the
10-month anniversary since the company's shares have
experienced significant short activity, and after 10
months there are only two months for shorts to qualify
for capital gains losses." (Badda-bing, badda-bang!)
Salton, for its part, touts an impressive
list of new products, including the
Ultravection, a convection-like oven that
it swears could very well be the
replacement for microwave ovens -- so
much so that the company believes the
Ultravection could wind up becoming generic. And as for
this column's concerns that falling department store
sales could be a sign of trouble? According to a
statement in response to my question: "Sales are not
down. Sellthrough at certain customers may be down,
but sales of the grill are not down. The decrease in
sellthrough at certain accounts, that is a direct result of
the fact that the grills are being more widely distributed."
Exactly!
From the "one that got away" department: This
column does lots of work looking into lots of companies
and every now and then one that should've been printed
falls through the cracks. Never makes it into print. And
at some point in the future we're red-faced that it didn't.
Such was the case with J.D. Edwards (JDEC:Nasdaq -
news - boards), a B2B software company. Two weeks
ago I put Martinez (as in Mark, my associate) on the
trail of looking into why there had been so much insider
selling at the company just as it was doing a buyback.
Seemed fishy, so Mark called the business-to-business
software company and got this: "We announced the
buyback because we felt the shares were undervalued.
But we are also doing the buyback to protect our
shareholders from the potential dilution that could take
place as a result of insiders selling their shares. As
those options got exercised we wanted to protect our
shareholders, to protect them from dilution."
But the selling also came at a time when J.D. Edwards
announced that its CEO was stepping down. "Doug
Masingill," Mark says, "was thought to be the man who
would help J.D. Edwards move heavily onto the Internet.
A look at revenue over the last few quarters indicates
that he may not have succeeded." To which a
spokeswoman responded: "Doug just didn't work out.
Doug will stay on for awhile and do some strategic
things."
Then I took a few days off, got busy when I came back
and, well, frankly, forgot about it.
Then came this, yesterday: The company warned that it
would report a loss rather than a profit for the second
quarter.
Would've been helpful in advance (believe me, I know!)
but lessons from stories like these can also help in
spotting red flags in the future. |
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