James and Mike,
>SJK. 22% This one is a former high-flying
>clothing company. The usual risk is change of fashion
>(as NKE, etc.). I did not see any permanent slowdown
>mentioned, though they had some production (?)
>problems last quarter. I'll try to look at this one.
Looks like SJK got itself into overproduced
inventories debacle. In addition, there is a whole
mess of family politics in company management.
CEO Bob Gray is close to retirement. There are
different opinions about him, but he definitely
built a company, even if, as some claim, he's
a dictator. Apparently, the company is being left
to be run by his daughter Kelly Gray, who is not
well regarded.
The recent problems include quality control
for 3 quarters in a row. Now, we have overproduction and
markdowns. Like "Motley Fool" says today, the
investment thesis in SJK was that their outfits are
timeless, not subject to fashion trends, and not
subject to markdowns. Now this has changed.
Apparently, some clothes lines became more trendy.
In addition, we got markdowns.
That's all negatives. On the positive side, we have
a cheap valuation of a company that produced >24% ROE for
10 years. The valuation approaches 1 PSR. We have a
franchise, brand name. It's a Buffett company deluxe.
Where we will go from here? One possibility is
that the management continues to deteriorate. The company
loses its franchise value and becomes a skeleton. This
is definitely possible. On the brighter side, they could
see the light and restructure. The ideal way would be
Buffett See's Candies approach - don't grow,
just milk cash, buy back shares and pay dividends.
They don't even need to come up with new "fancy" lines,
just sell the old-good-timeless clothes.
But the management egos probably won't let that happen.
If this is an era of "new Coke", we may
wait for the "Coke Classic" before we invest. :-))))
Other two possibilities is that the company
is going to sell itself or to take itself private.
The new guy on the board was lauded as a consolidation expert.
Anyway, SJK is definitely worth watching from here.
Do you guys have any insight in the company? It would
be great if someone could talk to the management and
hear their story.
Good luck
Jurgis
P.S. Reading list: SEC info, recent news releases,
Motley Fool comments, Yahoo board (bearish!). |
