Larry, profits may actually stall for few quarter as they deploy additional cash into e-commerce. What we should watch for is growth in the top line and their gross margins. If indeed they are going to start and grow their e-commerce business, that should increase their margins, but I expect that a lot of this increase in profitability will go into SG&A required for their e-commerce. I presume that they can use their shipping and receiving infrastructure to serve e-commerce business, somewhat canceling the negative impact of SG&A growth. my model (sales: 70, 75, 70, 85) for earnings (assuming I am right about $.3 for the current quarter), is calling for $.28, $.30, $.27 and $.36 or $1.26 next year, which should be almost 100% more then this year.
Another way to look at it is that they need about $14 MM in "gross profits to break even and their current margins (which I exppect will expand a little) are 12.5%, so they need $113 MM yearly to break even, or about $28 MM quarterly. Their tax rate is about 45%, which at $70 MM sales would yield $.45/share, but I have taken increases in SG&A per quarter of close to a million bucks (actually I took $850,000) to support growth of e-commerce. To the extent that their profit margins go above 12.5%, that, in this model should provide even more oomph to the bottom line, or alternatively provide more bucks for expansion of E-commerce. Whichever way we take it, I think it looks good from here.
Zeev |
