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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Barney who wrote (1894)	1/29/1998 4:25:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 18691

Re EGGS:They may be rotten, but WHY are they going up now???? Perhaps because a knee jerk reaction (no, I'm not calling anyone names) is frequently wrong. A little homework would have found the following: 1) The rent roll-off on the 80 remaining stores is not a huge amount of money. At the end of the last fiscal year, 3/29/97, the minimum rent payable over the following five years was $16mm with $6mm of that coming in the year ending two months from now. The lease on the distribution center ends this year. 2) Surplus Direct, which they acquired last August or so, had revenues of $59mm in the last fiscal year before the deal and $21.9mm in the December quarter. This is not just another ".com". It is a real business that real consumers and other real businesses order from. 3) The press release for the qtr was confusing on this point, but said "Internet sales [were] $11.8 million". If they were talking about Egghead online sales and not consolidated, add that to Surplus Direct to get $33.7mm for the qtr proforma. If that was a consolidated online number, you'd need to add online software to Surplus Direct revenues anyway, so it's still north of $21.9mm for the December qtr. 4) EGGS had, at 12/31, cash of $57mm, inventory of $68mm and total current assets of $146mm. Total liabilites were only $76mm. Even if they through all their inventory in the garbage, they'd still have $2mm left. Liquidate the inventories, pay off the the leases (assuming they find no one to sublet) and the employees (the $42mm estimated charge), and they end up with a decent starting balance of working capital for the reorganized company. 5) Operating expenses are expected to drop by $9.5mm p.a. 6) The resulting operation should have revenues of perhaps $75-100mm p.a., no debt and a market value of about $150mm ($126mm at one point this morning). 7) Several 13(D)s filed over the last couple months show significant accumulation by a few large investors, at prices mostly between $6-9. Now don't go covering all at once. Let me buy some first.<G> Seriously, I hope you all do see it slide back down a little, making it a better long play, but I wish I had done my homework a little faster so I could've gotten it below $6 this morning. OTOH, with the news so fresh and most holders probably confused, there may be plenty of time to get in long. Regards, Bob