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  • KB Home: Stay Away For Now [View article]
    Incentives don't cause margins to drop between 200 and 300bps on a YoY basis. That same story is certainly not showing up with the other homebuilders.

    Ask yourself this question. If the incentive argument is accurate, do you want to buy the only builder that is seeing a massive erosion in gross margin % in order to continue to compete in the market? I don't think so.
    Mar 22, 2015. 05:46 PM | Likes Like |Link to Comment
  • KB Home: Stay Away For Now [View article]
    PaulC -

    Prati Management predicted in another article that KBH would go to $50 within 2 years. For perspective that would be mean the company would be trading for about 4x its book value and well over 30-40x its potential 2016 earnings.

    Neither of those valuation levels is attainable, nor would they even register on a chart if you were looking at the historical trading range on Price to Book Value or Price to Earnings for a homebuilding company.

    Prati also has a comment in this thread that fundamentals are "improving" at KBH. Fundamentals fell off the face of the cliff at KBH in the 1st Qtr of 2015. KBH had the LARGEST decrease in gross margin % of any publicly traded homebuilder on a YoY basis. How this is an "improvement" in fundamentals is an interesting argument.

    The housing market has nothing left to goose it. You either bought good land over the last few years and are seeing good margins today, or you screwed up. The evidence says that KBH screwed up and bought land positions that are not allowing the company to earn as much as its competitors.
    Mar 22, 2015. 05:44 PM | Likes Like |Link to Comment
  • KB Home: Stay Away For Now [View article]
    atpgthoughts -

    Nothing in the article predicted the company would recognize more land impairments in the current quarter. Stop making crap up. I have traded KBH both long and short. I would still stay away.
    Mar 22, 2015. 05:38 PM | Likes Like |Link to Comment
  • KB Home: Stay Away For Now [View article]
    Prati - report is going to juice the stock, I don't disagree with that. I still have real concerns about the KBH operating model. Again, there is is no reason for the company to be seeing such a large decline YoY in it's gross margin %'s. This is not showing up at any other large national home-builder. I think you get a short term pop in the stock, maybe up to the $16 level, and from there it all depends on interest rates.
    Mar 20, 2015. 08:50 AM | Likes Like |Link to Comment
  • Zulily: Reset Expectations On This Growth Story Create Substantial Opportunity [View article]
    Ranger maybe this will help you:

    CVC is arguing that at some point, even though the company is continuing to grow revenue and its operating income percentage, a headwind for OCF and FCF will come from working capital turning into a negative.

    Of the $130M in OCF generated in FY 2014, about $100M of that came from current liabilities (component of working capital) increasing. When a current liability (payable, deferred revenue, etc...) goes up it is a positive to OCF. You have either generated revenue (increasing net income) or received cash in advance of recognizing revenue (increasing cash and increasing your deferred revenue obligation.

    CVC is saying that at some point in the near future, accounts payable/deferred revenue will go down because revenue growth is slowing, which will reduce OCF and the corresponding FCF. I would argue that the rate of the liability side of working capital will continue to grow, albeit at a slower rate, but the offset to this that will continue to show OCF expanding will be increased profitability (net income). Unless the company changes their model that would cause current assets (inventory, receivable, etc...) to increase then I see working capital continue to be a tailwind to OCF while the company is growing at 20-30% per year.

    I don't think we are having a constructive dialogue at this point and agree with CVC that we should let the market determine who is accurate. CVC implied in his original comment that I am assuming OCF grows with revenue. I am assuming this, but I only made that assumption in the near term. CVC, yourself, or any others can read the financial stmts and realize that assumption is born out over the last 2 years. I am not making a 10 year revenue and/or OCF growth call. I am simply saying that the short term dynamics, assuming the company grows its revenue in-line with guidance, will generate significant OCF/FCF over the next 2 years which provides the value today.

    I have no problem with CVC making the arguments. It provides competing viewpoints and allows me to rethink my analysis, which I will stand-by, in the context of it being applied to the next 2 years of growth.
    Mar 14, 2015. 01:31 PM | Likes Like |Link to Comment
  • Hhgregg: Important Nuggets From A Noisy Earnings Report [View article]
    SD - Round 3 will be abbreviated from my end, as you are obviously a bear which is fine. But your also making statements, that are inaccurate, which other readers should know about.

    Inventory - "we want to look at inventories on a quarter/quarter basis and with seasonality in mind". You are making a 100% false implication that the rise in inventory on a QoQ basis is out of the ordinary for hhgregg. If you go back and look at the last 5 years of financial statements, inventory is higher EVERY year at 12/31 compared to the prior quarter. The fallacy of your argument is you don't understand the business for hhgregg. 50% of their sales come from appliances. People don't give refrigerators to family members for holiday gifts. You are correct that we should look at seasonality. Seasonally, the spring is when people move and remodel and when housing is the strongest. Thus the company carries a heavy appliance inventory balance at 12/31 each and every year. Go back as many years as you choose, back to when the company was growing its top-line. Inventory always goes up QoQ at 12/31.

    Debt - The company carries no long term debt. Congrats for finding the $600K of interest related to the line of credit that is tapped during the quarter, every quarter, to fund working capital as needed. Most companies do this. Fixed rate long term debt is not an issue for this company. $600K of interest expense during a quarter with $665M in revenue is not the issue for this company.

    Remaining Assets - "The $135M in PP&E left on the books is mostly leasehold improvements, which are worthless.". If you feel this way, report the company and its auditors to the SEC as they are falsifying their financial statements. The point you are making is, again, factually incorrect. The company did not impair 48 out of 200+ store assets because they are downsizing the stores. Read the 10-Q and press release.

    I will end with your margin of error argument. A depressed share price has nothing to do with margin of error from an investment thesis standpoint. If the balance sheet was in bad shape, the margin of error argument would carry water. The balance sheet is not a concern today.

    I have invested in hhgregg before and will again. It's a great trading vehicle. I have made money long and short. I am not advocating this being a core holding, long-term, in a portfolio. With a $160M market cap, there is significantly more opportunity to make money being long today than their is being short.
    Mar 12, 2015. 12:07 AM | Likes Like |Link to Comment
  • Zulily: Reset Expectations On This Growth Story Create Substantial Opportunity [View article]
    On the back of the market dump today I went long ZU common stock and long short term call options in ZU.
    Mar 10, 2015. 10:17 PM | 1 Like Like |Link to Comment
  • Zulily: Reset Expectations On This Growth Story Create Substantial Opportunity [View article]
    I am not sure I exactly follow the question. Working capital did not change at all from YE 2013 to YE 2014 (~$220M in both instances). Growth went from over 100% to ~70%. If your argument about working capital and a subsequent impact on OCF were to be true, I would have thought it would have been born out in the prior year OCF growth numbers, and it was not. OCF growth outpaced revenue growth in FY 2014.

    My assumption was laid out in the article fairly clearly. I am assuming that OCF growth trends at the same BPS premium to revenue growth seen in the PY. The business model is not going to change in a way that involves negative OCF items (i.e, increasing AR or Inventory) and the positive working capital items will continue growing with the revenue growth. You will also have Op Inc % expansion driving a OCF growth as well.
    Mar 10, 2015. 10:15 PM | Likes Like |Link to Comment
  • Hhgregg: Important Nuggets From A Noisy Earnings Report [View article]
    Consumer electronics have to turnaround for the company, and that is where the progress was in the last quarter. Comps were down 4%, versus being down 20% during the prior year quarter. Also on a YTD basis, the decrease was much smaller in the last quarter compared to the 9 month period. I suspect we see positive consumer electronics comps in FY 2016.
    Mar 9, 2015. 11:33 PM | Likes Like |Link to Comment
  • Hhgregg: Important Nuggets From A Noisy Earnings Report [View article]
    Impairment's will not affect gross margin. Store assets (leasehold improvements, PP&E, etc...) impaired will show up as lower depreciation expense going forward.
    Mar 9, 2015. 11:30 PM | Likes Like |Link to Comment
  • Hhgregg: Important Nuggets From A Noisy Earnings Report [View article]
    SD appreciate the comments:

    1) - buying opportunity.
    2) - No rebuttal other than I will tell you that the company had positive adjusted EBITDA in the face of the transition which I will take.
    3) - Fairly confident that given the improving SSS metrics, and the detailed impairment analysis that was done, the company would have been conservative with assumption leading to more rather than less in impairments. I would highly doubt you see another asset impairment.
    4) - Debt discussion. Revolving lines of credit are not long term debt. Do you know what is in the long term liabilities account? I would not call it "debt" when this balance is made up of items such as deferred long term gains on leaseback revenue....
    5) - Working capital is working capital. I don't know how you can just pick Cash/AR and compare it to Accounts Payable. Your completely ignoring the inventory balance of what the company will turn over significantly (into cash) in the next quarter. Don't follow you on this one. Working capital is a fairly straight forward and widely used metric. I guess you are using "adjusted" working capital which is a new one for me.
    6) - Inventory buildup? Not sure what you are saying here. Inventories are lower on a YoY basis.
    7) - Company has generated over $100M of FCF from 2012 - 2014. EPS can look bad while still generating cash.

    Low margin TV business....gross margin % for the company was higher YoY and a portion of that was specifically attributed to large screen 4K tvs that carried a higher margin. When you consider that the tvs that were being sold in stores 12 months ago were all under $500 bucks, almost at any size, the fact that larger higher definition tvs are in the market today is obviously a plus.

    Differences of opinion obviously but thank you for the comment and chance to add to the discussion.
    Mar 9, 2015. 11:25 PM | Likes Like |Link to Comment
  • KB Home: Stay Away For Now [View article]
    I obviously read your article, and you will note that I made a long call on KBH last year that turned out to be a so-so call. I can assure you that from being in the trenches of housing, the market is different today than it was a year ago. There have been very few times in the housing market history where volume has picked up but margin/op margin has gone down. Consider as well that there is a strong likelihood of interest rate increases that, while still ultimately at historically low levels, will probably hurt new home sales temporarily at least.

    If the market fly's, KBH has more upside than any builder. If the market stagnates, this is going nowhere. If the market falls, KBH behind HOV/BZH has the worst balance sheet and will be punished.

    I don't see the market flying which is why I suggested staying on the sidelines.
    Mar 9, 2015. 10:20 AM | Likes Like |Link to Comment
  • AV Homes: Undervalued Homebuilder With Near-Term Catalysts [View article]
    I don't think AVHI is a bad company but I think you are taking some very serious liberties with your assumptions in arriving at a valuation. I could argue just about all of your assumptions frankly, but I am going to hone in on one.

    Gross Margin %

    You are showing AVHI having a Gross Margin % of somewhere around 7% in its most recent annual earnings. Most builders are at 20% or above. Why is AVHI so low?

    Secondly, you are extrapolating that the Gross Margin % for AVHI will nearly double by FY 2016. You offer no basis for that assumption except that the trend of increasing gross margins seen in the past years will continue. Every single public builder, is telling the world on their earnings reports that margins are flat or declining. Not a single builder is saying they seen true margin expansion, which comes from declining input costs (land or commodities) or rising home prices. Home prices are flat, land prices are up, and the labor pool for housing is still so tight that the dip in oil prices has had zero effect on the house cost side of the equation.

    Long story short, not a chance in the world that the company sees its gross margin % double in the next 2 years.

    You either need to better explain that assumption or flat out revise your analysis.
    Feb 20, 2015. 12:06 AM | Likes Like |Link to Comment
  • Debunking Yet More Misleading Articles [View article]
    Paulo - you are grasping at straws with the whole credit card / another e-mail account concept. Is it possible to beat the system, sure. Is it probable that a a material amount of the 10 million new users were on their 7th email address and 7th credit card just to beat the system? Not likely.
    Dec 28, 2014. 09:51 PM | 1 Like Like |Link to Comment
  • Debunking Yet More Misleading Articles [View article]
    Your first two points are valid.

    Trying to throw cold water on 10 million people "trying" Amazon Prime is simply a one-side argument. People can't just try Prime every holiday season. I would argue that 10 million people tried it, and will either have to subscribe next year to use it again, or already became paying Prime members because they liked it so much.

    How about 60% of holiday shoppers on Amazon using a mobile device as part of their shopping experience? I think a better article is the enormous threat that Amazon poses to Google and its search business going forward if buyers continue to go mobile and continue to skip Google and search for products directly with the one retailer that has them all.
    Dec 26, 2014. 04:57 PM | 3 Likes Like |Link to Comment