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  • Bed Bath And Beyond Has A Compelling Opportunity Here And Now [View article]
    Thanks Ravi for the comprehensive piece. You brought more angles to the analysis than most of what I typically see on SA. One area that would be worth an astute analyst covering is management compensation for BBBY (especially as a comparison to peers). From a cursory reading of their recently released DEF 14A, the management of BBBY get compensated...very very well.

    Open (rhetorical) question for anyone willing to do the work is - considering the plateaued/declining margins of the business, limited organic growth, and a share price that has basically done nothing despite strong buybacks - is management worth these huge $$$? I really haven't formed a view yet other than it's worth doing a deeper dive, as well as a comparison to a select group of comps. Honestly, this isn't an activist call, it's just an open question.

    There is some commentary in the DEF 14A suggesting that the comp committee reached out to shareholders to gauge feedback on compensation plans and implemented some changes as a result. Read more here:
    Jul 2 10:42 AM | 1 Like Like |Link to Comment
  • Bed Bath & Beyond Earnings Redux: Like The Retailer's Cash Flow, Still Waiting On Stock [View article]
    Check the just-released 10-K to resolve the share count discrepancy you identify above:

    Nearly half the repurchased shares in FQ4 occurred during the last month of the quarter, so the weighted average math that appears at the bottom of the FQ4 income statement would not capture the impact of this acceleration in repurchase.

    If you look at the share count as of 3/29/14, it is 204.0m shares.
    Apr 30 03:15 PM | Likes Like |Link to Comment
  • Natural Grocers: Vast Runway For Growth In A Surging Industry [View article]
    See here for my comment on this recently posted SA article on NGVC:

    My response:
    Mar 18 11:36 AM | Likes Like |Link to Comment
  • Natural Grocers: This Small Cap Has Limited Upside Potential [View article]
    Thanks for the well-researched writeup, Pim.
    Would be helpful to frame some of your assertions around valuation, balance sheets, and growth potential a bit more clearly for your readers.

    1) 83.9x P/E is on TTM Q1 FY14, not TTM projected at Q4 FY14 - using your bar chart figure the P/E declines on the latter basis to ~67x. You mention "this year's earnings per share", which I interpret as fiscal 2014 but you're really talking about TTM through the last actual quarter. When framed against the top and bottom line growth of various competitors, NGVC is growing the fastest so when ‘normalized’ for growth (e.g. a P/E/G-type analysis), the high multiple, in isolation, should not be alarming.

    2) Taking on more debt at NGVC is not as problematic as you suggest, given their net leverage ratio was <0.35x at the end of FY2013. Sprouts has an appreciably higher net lev ratio (but still low) and they aren't growing as rapidly on top or bottom lines, does that concern you as well? The grocery trade is one that generates a lot of cash from operations given negative working cap dynamics of the biz. When a company has virtually no net leverage to speak of currently and fundamental unit economics are sound, taking on a bit of additional leverage to achieve aggressive expansion plans should be a good thing, not a bad one.

    3) WFM has less than 4% of their store base operating internationally with no clear intent on scaling overseas rapidly. Maybe some option value there but “global expansion” has not been high on their radar screen as they’re busy defending market share and achieving a publicly-broadcasted 1200-store domestic goal. In my mind, the fact that WFM happens to have a toehold global presence is not really relevant here.

    Setting aside market valuation for a moment, if I were to sit in any position among the rapidly expanding natural foods chains, I’d rather be sitting in an upstart (e.g. NGVC or SFM) rather than in WFM, which has enjoyed its status as the only game in town for eternity…until now. The reality is, prices have to come down and WFM’s management has acknowledged as much. WFM can still do well but their gross margins are heading down – whereas NGVC and SFM start with fairly low gross margins (>500 bps lower) and manage to consistently undercut WFM on like for like products in most markets, as some of the other commenters here have observed. Despite the lower pricing, NGVC and SFM are generating attractive unit economics and ROICs based on less costly, smaller formats. Smaller store formats with attractive ROICs can go more places than WFM’s traditional 36k square foot box. Definitely something to consider if you’re long WFM.

    “Limited upside potential” for NGVC depends on three big things IMO: execution, competitive response, and investor time horizon. NGVC’s management team has been executing quite well, the competition is ratcheting up but NGVC is holding its own (you could argue NGVC is the aggressor in this growth industry), and given the strong execution, the NGVC story can continue to compound for many years (recall they have a 200 store target in existing markets).
    Mar 18 12:37 AM | Likes Like |Link to Comment
  • Natural Grocers: Vast Runway For Growth In A Surging Industry [View article]

    Fiscal first quarter continues strong trend of double digit comps growth and operating leverage. Company is managing rapid store growth well, and appears to continue to differentiate itself through focus on secondary/tertiary markets, "EDAP" pricing, and strict focus on organics and high quality product.

    This management team and concept continue to fly a bit under the radar screen despite turning in the best performance of any other natural foods public comp so far (WFM, TFM, SFM, FWM).
    Jan 30 10:31 PM | Likes Like |Link to Comment
  • Beyond The Current Slump Of Bed Bath & Beyond [View article]
    Amanda, the way that I think about U.S. retail today is pretty un-nuanced. Here are the dimensions for retail success, in my opinion:

    1) Have lowest prices by a meaningful margin
    2) Have extremely wide selection
    3) Have best customer experience, including speedy, hassle-free fulfillment
    4) Have differentiated / proprietary product

    For retailers to succeed in this hyper-competitive market, they should have at least 2 of the above. For BBBY, I really don't think much of their stores or their customer service - let's be honest, they are medium-sized boxes stacked high to the rafters with fairly commoditized product. But what they have are cheap prices (1) and wide selection (2).

    What could really get them going is getting (3) right, which they are clearly investing in with the website revamp, omnichannel investments, mobile apps, and new logistics facility in Pendergrass, GA. By comparison, Amazon has (1), (2), and (3) in spades. Also, Costco has (1), (2), and (4).

    I don't really see concepts like brand value and customer loyalty factoring in big with most mainstream retailers today - technology and eCommerce has really reduced the barriers to effective competition (with Amazon leading the pack in terms of disintermediation). There is virtually no loyalty among big boxes, only price competition, selection, and convenience.

    If BBBY can make itself more "Amazon-like" by continuing to invest in seamless technology and keeping its prices lowest, then it has a shot to continue growing instead of getting its lunch devoured by Amazon.
    Jan 29 01:36 PM | Likes Like |Link to Comment
  • Beyond The Current Slump Of Bed Bath & Beyond [View article]
    The company doesn't break out comp figures by sub-segment (e.g. Bed Bath vs. Buy Buy vs. Xmas Tree vs. World Mkt). It has historically been a very well-run company and management takes a long-term view to value creation. I'd prefer more disclosure and data, specifically:
    - eCommerce growth rates
    - Breakdown of CapEx spend into relevant components (e.g. new store vs. IT vs. warehouses vs. other)

    The fact of the matter is that BBBY is THE low-priced leader when consumers apply the ubiquitous 20% coupons to their purchases in-store. Even lower than

    Problem is, their topline is not growing fast enough to meaningfully offset margin erosion (from price competition, online fulfillment expenses, mix shifts, and coupon usage). SG&A expenses have been fairly well contained, so it's really gross margins and high levels of capex that are holding down free cash flow growth.

    BBBY is the dominant category leader for household products and light appliances. There is no doubt in my mind that they should go head to head against Amazon, leveraging their 1500+ national store network and low prices to compete more effectively, but so far it hasn't really shown up in the revenue growth numbers.
    Jan 26 03:50 PM | Likes Like |Link to Comment
  • Natural Grocers: Vast Runway For Growth In A Surging Industry [View article]

    Very nice fiscal fourth quarter by NGVC. Accelerating two-year stacked comps for both mature and overall stores is quite impressive. Faster 2-year stacked comps growth-to-date than SFM, WFM, TFM.
    Nov 22 04:03 PM | Likes Like |Link to Comment
  • J.C. Penney: Is The End Near? [View article]
    Simple questions for us all to ponder, preferably unemotionally:

    1) Why are fashion leaders (e.g. designers, brand mavens, corporate heads) calling Ron Johnson a forward-thinking, "visionary" retail genius while JCP's market cap is falling precipitously? Where is the point of difference among these perspectives and which has a more sustainable/defensible future?

    2) It is clear that JCP represented a certain set of values to the former customer base (lower prices, value for money, traditional styling/fashion?) - and then RJ came to the Company and seemed to upend all that JCP had previously stood for. Does JCP have a future with a new set of shoppers when it has seemingly alienated its previously loyal, core customer base?

    3) How much time does RJ / JCP have to prove their value with a new set of customers going forward? How will competitors respond?
    Mar 12 11:06 PM | Likes Like |Link to Comment
  • Reminding Cincinnati Bell's Management Who They Work For [View article]
    Thanks so much for authoring this article. Something needs to be said. I had heard some rumblings about previous incidents in which CBB management paid itself lavishly, but the latest disclosure about what's happened in the CONE transaction, as well as recent massive share sales by CBB management are really egregious.

    I'm in the process of digging in further but here are some initial observations/thoughts:
    1) CyrusOne management was given a performance package (as detailed in CONE S-1) where they could make 6% of whatever equity value was created in the CyrusOne subsidiary from the initial CyrusOne acquisition to IPO. I'm assuming this is where the $40-50m IPO "success fees" come in. In ADDITION, management of CONE was given a 5.8% stake of the pro-forma common shares (which represent 30% of total partnership units) of CONE.

    Adding this total comp up, you get to something like $70-80m of shares and cash compensation for the senior management at CONE. What gives? So they deserve something for steering CONE to a successful IPO, but let's not forget it was USING CBB shareholder's CASH that enabled CONE to expand rapidly and "exit" successfully in an IPO event. Why should management be incentivized like a startup when the model was already well-established? It's not like CyrusOne was a distressed asset when it was purchased. I understand that it takes certain levels of compensation to get people like Kevin Timmons to come on board from Yahoo but really? You're going to pay all your top executives $7-10m average for "successfully" spinning off CONE while legacy CBB shareholders get crushed in the aftermath?

    2) Is it just me or was the CONE IPO valuation set at an unusually low price (even after it finally priced above the initial range)? Great if you are one of the institutional investors who got in on the nice opening-day pop, but sad for legacy CBB shareholders who got diluted more than they should have been. Why was there not more of an effort to price CONE IPO well above $19?

    3) The disclosure around the need to spend incredibly high amounts of CapEx at legacy CBB was a huge surprise to me. This is a legacy telco and while, yes, there is absolutely a need to spend capex here to avoid CBB becoming a rapidly melting icecube (as most landline-only businesses are known to be), the announcement that there will be no free cash flow for the foreseeable future is ridiculous. I feel like I just got slapped in the face not once, but at least three times during the course of the earnings call.

    If you're going to disclose such inordinate amounts of capex and no free cash flow this year, please break out what the CapEx is being spent on and the expected return, and why CBB shareholders should remain optimistic about the enterprise value of legacy CBB.

    Laying out a bunch of deleterious "Certain Free Cash Flow Items" on one slide without this backup was truly a feat in pissing off your shareholders.

    Still looking into the amazing timing that Cassidy had in offloading millions of shares above $4.50 throughout last Fall and into January. Simply amazing.
    Feb 28 11:26 AM | 2 Likes Like |Link to Comment
  • Dell: The Art Of The Steal [View article]
    I would just add that on an EV/EBITDA basis, the proposed deal implies a valuation of Dell in the range of 4-4.5x EBITDA estimated EBITDA for 2012. Even ignoring a control premium typically required for these types of deals, this takeout valuation is absurdly low for a business with very modest capex requirements (<1% of sales on average over last 3 years).

    I would also add the EBITDA being reported by Dell in FY2013 YTD does not yet reflect full accretion from the $4.9 billion in acquisitions done in the fiscal year (SonicWall, Wyse, Quest Software, etc.), some of which were clearly profitable on an EBITDA basis.

    Namely, SonicWall which had $260m in trailing 12-month revenues at the time of the acquisition (as disclosed by Dell), and Quest Software, which had $857m in revenues and $170m of EBITDA (ex-stock based comp) in the most recent disclosed fiscal year (FYE 12/31/2011). Wyse was private and therefore there was no financial performance disclosure, but it is reported to have been bought for $350-400m.

    If you add back in the annual run rate Adjusted EBITDA for the largest of the FY2013 Dell acquisitions, the implied valuation multiple on the LBO will look even worse (lower) than 4-4.5x. When I say "worse," I mean worse for those of us in the public holding shares of DELL. From the perspective of Dell and SLP, it's absolutely [expletive] great.
    Feb 9 02:05 PM | 1 Like Like |Link to Comment
  • Dell LBO Deal Structure - Like Buying A Rental House With Cashback And No Money Down [View article]
    Thanks for your comment, ML.

    Either way, even if 100% of offshore cash is repatriated to paydown debt instead of "refunding" equity, the gains on equity are massive (on paper or in the form of cash), not all that risky, and very straightforward.

    I do still believe the "briefcase in the hallway closet" cash is available to use immediately. Yesterday's 8-K (

    Excerpted from Sect 5.17 Liquidation of Investments: Cash Transfers:

    "the Company shall, and shall cause its Subsidiaries to, use reasonable best efforts to (x) sell for cash, with effect as of a date reasonably proximate to the Closing Date, marketable securities and cash equivalents held by, or on behalf of or for the benefit of, the Company and/or any of its Subsidiaries (the “Investments Liquidation”), and (y) transfer from Subsidiaries (whether through loans, loan repayments, dividends, distributions or other transfers), prior to the Effective Time, an amount of Available Cash to the Company (the “Cash Transfers”), in as Tax- and cost-efficient method as is reasonably practicable taking into account the working capital requirements of the Company’s Subsidiaries, with a view towards making available at the Effective Time no less than the Target Amount of Cash on Hand, it being understood that nothing in this Section 5.17 shall impose any obligation on the Company to effect any Cash Transfers in excess of $8.1 billion."

    The excerpt above suggests up to $8.1 billion of surplus cash that could *potentially* be drawn out of the Company and used in the LBO transaction to "pay the aggregate Merger Consideration" as well as to "satisfy and retire the Repayment Debt...Revolving Credit Facility Debt...and pay any fees and expenses..." (pg. 33).

    It's not clear how much of existing debt will be "Repayment Debt" vs. "Rollover Debt". The $3.0 bln Credit Facility Debt was undrawn as of 11/2/2012. So, there should be *plenty* of briefcase cash available to reduce required equity commitments by MSD and SLP.
    Feb 7 08:03 AM | 1 Like Like |Link to Comment
  • Natural Grocers: Vast Runway For Growth In A Surging Industry [View article]
    Jan 31 05:35 PM | Likes Like |Link to Comment
  • Natural Grocers: Vast Runway For Growth In A Surging Industry [View article]
    Thanks for your comment, TakeFive. For me, this is not a trade, it's a long term, multi-year thesis about secular growth in the natural foods industry and the ability of this particular family-dominated management team to take NGVC to the next level.

    The nice thing is that they have picked a good spot to be in, as you point out, and they are executing well thus far. As quickly as Whole Foods Market is growing, the national demand for healthy alternatives cannot be satiated by them alone.
    Jan 17 11:19 AM | 3 Likes Like |Link to Comment
  • At 52-Week Lows, J.C. Penney Stock Is Untouchable [View article]
    I think you have to assume that there is a master plan for how the shops go in, which categories, and which brands. So it may well be that management is happy to see Lee's cannibalized as they were planning to reduce or eliminate that line anyways to make way for a new shop.

    As for timing of when new shops go in, part of it is dictated by key selling seasons, such as Spring, Summer, Back to School, etc. With other brands like giggle baby shops, JCP or the brand itself have put out PR announcing when the stores will go in.

    Plethora of reasons to be negative on this company. Listen to the heads of the brands who are collaborating with JCP on next year's shops, however, and you get this sense of optimism from them, and praise for what RJ is putting in place. When is the last time you heard a brand talk about how excited they are to sell through the department store channel? Time will tell whether the reality lives up to the promises.
    Nov 15 11:20 AM | 1 Like Like |Link to Comment