Mark:
Here is my speculation on what went on at FEET (this is long):
The kingmakers at the company sat down one day and discussed the future growth of the company. They projected 350 big box stores nationwide as the growth potential for the superstore model. Then they asked: how will we grow after that? The answer probably was that FEET could move into the smaller markets that would not support a big box store.
Most likely, the opportunity to buy Imperial Sports and Athletic Attic came up and management thought it was a chance to get started on the second phase early. Who knows? Maybe they thought such a good opportunity to break into that phase would not present itself again. So they jumped while they had the chance.
This move came much earlier than needed, however, in terms of growth. It was not necessary to sustain what had been started. Subsequently, the attempt to swallow these two chains was more complex and expensive than expected, it caused unexpectedl overhead expenses, and ate into the capital reserves. Combined with the unfortunate timing of the accounting change, the stock got hammered.
I personally think it would be a bad move for FEET to attempt to expand the smaller store format at this time. It may be that FEET can make the necessary changes and make the two acquisitions contribute to the bottom line in a significant way, but FEET needs to get back on track with the big box stores. If I were the CEO, I would downplay the smaller stores, avoid borrowing money if possible, and concentrate on reestablishing the superstore visibility within the investment community.
FEET was growing very rapidly and a slowdown was to be expected. Statistically, the growth rate was not sustainable. Attempting to sustain it by purchasing the two chains was a mistake.
Walter High |
