Bidz.com CEO Defends Company From Citron Report

Speaking on a conference call with investors this afternoon to respond to a negative report yesterday from Citron Research, Bidz.com (BIDZ) CEO David Zinberg said the company learned only yesterday that Saied Aframian, manager of L.A. Jewelery, a major jewelry supplier to Bidz and a larger shareholder, had been convicted in the 1980s for fencing stolen jewelry.

That was one of a number of key points that came out of the conference call.

Here are some other key bullet points from the call:

• Zinberg says Citron’s report was “untruthful,” and that the company is considering legal action against Citron.
• Zinberg asserted that comparisons between the cash and inventory positions of Bidz.com and Blue Nile (NILE) and Overstock (OSTK) are not valid since the companies do not have the same business models.
• On the company’s $1.1 million cash position, he said BIDZ has had 15 quarters of profitability, a $15 million untapped credit line, and expects 2007 EBITDA of $19 million and free cash flow of $16 million. He says BIDZ has no cash flow issues.
• On the company’s rising inventory levels, he says that this is a conscious strategy, and that the company has been historically under inventoried. He also says the company is moving into manufacturing some of its own items, which will require that inventory be held longer.
• Zinberg says he had been selling 30,000 shares a month under a routine selling plan, but will be reducing that to 10,000 shares in December. He draws no salary. He says he has received no options since 2005.
• On the relationship with Aframian, he says that he has never had any reason to question his integrity, but that the company is not re-evaluating his relationship with him. He says the company has cuts its reliance on L.A. Jewelery to 12% of revenue from 35% a year ago. He also says the company could easily replace the goods they get from L.A. Jewelery from other wholesalers. He added that Aframian is a manager, but not an owner, of L.A. Jewelery. He says the company checks out its suppliers with the Jewelery Board of Trade. He also said that he has known Aframian for 7 years.
• On the failed IPO, he said all insiders had agreed to a lock-up agreement, but that many shareholders had refused to sign.
• On the company’s F rating from the Better Business Bureau, he says there are 241 complaints on filed compared to more than 8 million items sold in the last 3 years. He says the merchandise return rate is 3%-4%.
• On appraisal service AIG Labs, also known as American International Gemologists, he says he asked the company to take down the picture of its office building with the AIG logo, since the building does not actually display that logo. He also said BIDZ is negotiating with other appraisal services.
• On possible shill bidding on the site, he says that shill bidding is against company policy.
• On the financial outlook: he sees revenue in the fourth quarter of $56 million to $58 million, ‘07 revenue of $180 million to $182 million, and ‘08 revenue of $225 million to $235 million and EPS of 47-51 cents a share.
• The company said that some of its inventory is more than 90 days old. It also said it values inventory at cost.
• Zinberg says about 25% of its jewelery is sold below cost.
• On the company’s apparent sale of televisions and other goods at very high prices - very far above their actual value - Zinberg says the company gets zero revenue from electronics sales. He says they are sold by certified merchants, who are allowed to sell goods on the site for free. There are about 40 certified merchants. Zinberg had no explanation for why people would bid more than $11,000 for a TV worth less than a tenth of that.
• Zinberg insisted there was nothing strange about the many bids now on the site for a large yellow diamond ring listed on company’s home page with multiple bids north of $500,000. He says the company has no way of knowing if the bidders can actually pay for such a large purchase.
• Zinberg says about 20% of winning auction bids do not result in transactions; but he says they only book revenue on shipment of goods once cash is received.
• Nice…some wag on the Q&A portion of the call identified himself as Sherman McCoy, which is the name of the central character in Bonfire of the Vanities.
• He had no explanation for why one bidder bought 14 televisions at above-market prices.

If the call was intended to boost confidence in the company, it did not work. BIDZ, which fell $4.67 in the regular session, after dropping $3.38 yesterday, is off another $2.34, or 19.7%, to $9.55, in after hours trading.

Comments

[User 117754]

The "I don't know" is what is troubling. I was thinking of getting a position in BIDZ but I decided to wait. I have bought some jewelry recently from the website and will see the quality once it comes in.

As for that picture with the sign. If anyone actually thought that picture was real needs to get their eyes checked. It is obvious that the logo was photoshoped on. The shadows don't match.