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  • Why I'm Buying Aeropostale [View article]
    I agree that NOLs are only worth something if there is a future profit.

    The management team said that 3Q was when results of the turnaround should start to bear fruit. By all accounts, the beginning of 3Q anyways did have improved merchandise, traffic and revenues.

    I believe that seeking alpha articles are having a short-term effect in making some investors believe that the company will declare bankruptcy within a few months. When they don't, the stock will likely go up, especially if they can deliver on positive 3Q comps.

    The company still has many millions in liquidity that it hasn't touched.
    Oct 5, 2015. 03:02 PM | Likes Like |Link to Comment
  • McKesson: An Often Overlooked Opportunity In The Healthcare Space [View article]
    The fundamentals have changed and that's why the drug distributors are down. They won't have the same margins and growth they have had the past couple of years. Their share buybacks don't help you unless they lower the share count.
    Sep 26, 2015. 05:10 PM | Likes Like |Link to Comment
  • There Is Value In InterOil [View article]
    Seriously this is nothing more than the same people making the same arguments that the made many years ago. Remember when interoil was going to deliver gas by 2012 at the earliest?

    In the end here is still no FID for this supposedly perfect project years later. It's just that now with lower gas prices and China's over-levered economy finally starting to show weakness. There is less appetite for small speculative projects from companies with no track record.

    And Interoil is still burning through cash without ever having produced anything.
    Sep 24, 2015. 07:58 PM | Likes Like |Link to Comment
  • McKesson: An Often Overlooked Opportunity In The Healthcare Space [View article]

    Below is a great article on ABC.

    Many of the factors that hold true ABC and CAH also hold true for MCK. In short, often when a company's competitive advantage is starting to erode they start to look for acquisitions in areas where their competitive advantage may not be as large. Like European pharmacies in MCKs case, and buying Cordis in CAH's case.

    It's clear that margins in the U.S. distribution business have been artificially inflated by large drugs having a generic equivalent for the first time. This creates greater demand from McKesson's customers, and hence greater margins for McKesson. Overtime however, the shortage abates as more generic equivalents enter the market and the distributors margins erode.

    Yes spending on drugs will rise, but most of that growth is going to come from specialty drugs which have very low margins, under 1%. In fact if you look at McKesson's financials, they have said that these specialty drugs have driven margins lower. It was very recently that McKesson's drug distribution operating margins were under 2%.

    So even with a 6% increase in U.S. drug spending, expect McKesson to grow organically much more slowly than that due to compressed margins.

    Further expect them to continue to unload mass amounts of capital in an attempt to consolidate the U.K distribution and pharmacy market.
    Sep 24, 2015. 05:34 PM | Likes Like |Link to Comment
  • McKesson Is On My Radar Screen After Its Most Recent Correction [View article]
    I haven't fully researched this but it seems like they all have the same problem. Though they are very profitable and dominant in the U.S., gaining market share is very difficult since between the three they already have 90% share.

    Further the political climate in the U.S. is very dicy. When the leading candidate for President starts talking about price caps, you know that the distributors will have to share some pain for that.

    They are trying to solve this problem by expanding overseas and offering new products and services. McKesson is the only one that has tried to straight out buy a large distributor and pharmacy chain as opposed to partnering with one.

    Given McKesson's history, you can bet that through Celesio they are going to acquire more pharmacies and distributors. In fact they have already started by buying Sainsberry.
    Sep 24, 2015. 11:38 AM | Likes Like |Link to Comment
  • McKesson Is On My Radar Screen After Its Most Recent Correction [View article]
    Hi ID-

    The big three drug distributors are all obviously great businesses with scale advantages. Drug spending is set to grow at 6% in the US over the next several years. A lot of that growth will be in biosimilars and other generics which we assume will allow the distributors get a greater spread in their drug sales. The big three should take a greater portion of the health care spending pie than before.

    The trouble is that there are very few opportunities to gain share in the U.S.

    My question would be which of the three is better? All three have different solutions towards expanding their obvious advantages in the U.S. world-wide.
    Sep 23, 2015. 05:00 PM | Likes Like |Link to Comment
  • Taking A Bite Out Of The Golden Arches - Bearish [View article]
    Egg McMuffin is the most requested item. Company is also sliming down menu. CEO did turnaround at McDonald's U.K. Reminds me of 2002 when the stock was at 12 and everyone was saying that Starbucks, Panera and Krispy Kreme would put them out of business. It didn't happen and McDonalds came out with great new products revamped their menu and started comping. We all know that before long McDonald's will be back to 2-3 percent comps.
    Sep 22, 2015. 05:33 PM | Likes Like |Link to Comment
  • Aeropostale: From Clothing To Closing [View article]
    "The sourcing agreement is pretty slam dunk as cost receipts are likely close to $400-450M / year."

    I really don't know where you are getting your numbers from. The financials clearly state a minimum purchase agreement of $250 to $280M of merchandise. The company clearly has a sales base to support that kind of purchase.

    "IMO, the bigger question is the $70M cash threshold. Back of the envelope math puts them below that number early to mid-2016. Obviously this could change if they can get "substantial" sales increases."

    I am beginning to sound like a broken record. But here is what the Q specifically states.

    "Partners which requires a minimum liquidity coverage of $70.0 million of cash and availability under the revolving credit facility."

    Your liquidity analysis has to count the revolver and you continually refuse to do that.

    The company's revolving credit line is $181M and is untapped at the end of Q2. Given that the company was cash-flow positive during 2H 14, I find it unlikely that the company will burn nearly $200M of cash between now and 1H 16. I would say that even without a "substantial increase in sales" it would take three years to run through $200M.

    So the company has some time to turn the ship around and start being profitable again. If you want to argue that even three years won't be enough time, that's fair, but you are incorrect to argue that ARO has less than a year of liquidity left.
    Sep 22, 2015. 05:09 PM | Likes Like |Link to Comment
  • McDonald's Has Significant Upside Potential [View article]
    I don't think that's accurate.

    Refranchising stores allows you to shift all of the cost risk to the franchisee. If the cost of beef goes up, there is no effect on the franchisor. In exchange the company accepts less profit per dollar of total sales than it would from a company owned store.

    The stronger your concept the more you want to franchise.
    Sep 22, 2015. 08:36 AM | Likes Like |Link to Comment
  • McDonald's Has Significant Upside Potential [View article]
    One thing you are missing here is that McDonalds LTM earnings are about 20% below normal earnings due to a strong dollar and missteps at the company which management is currently trying to correct.

    After looking at this some, they really have a P/E of 15 or 16 or so on Normalized earnings after accounting for excess cash and their stake in McDonald's Japan.
    Sep 21, 2015. 11:12 AM | Likes Like |Link to Comment
  • Why I'm Buying Aeropostale [View article]
    "The problem is like you have in throwing a cruise ship into reverse - it takes a long time to do it. First you have to slow down in the direction you're going because inertia is going to be carrying you in that same direction for some time. Then, once you've slowed, you can stop, and finally change direction. ARO is still in the first phase where inertia is still pushing them in the direction which is not where they want to be going."

    I think they are in the beginning of the change direction phase as evidence by the positive comps for stores that have completed their back to school season.

    "The headlines are already starting with expectations of discounting during back to school."

    I don't know if you have been to the stores lately but I didn't see a whole lot of discounting. At least no more than Aero usually does. The big discount was buy 1 get 2 free of logo tees...but the new merchandise, did not have huge unusual discounts. Keep in mind that Aero has always discounted even during their heyday.

    "All I have done, and am continuing to do is put the facts out there. You see the glass as half-full, I see it as three-quarters empty. Until it plays out, both of us are equally correct in our view. However, thus far, from the time the article was posted until now, I have certainly been more correct as the share price is evident of that."

    I would say that the share price is evident of a very impatient investor base not of the quality of your analysis. You have ignored several key points and failed to respond to them. If you choose to post again, please explain why you chose to ignore a $219M revolver in your liquidity analysis, and why you chose to ignore August results as well.

    I responded to your points, I would like you to respond other than pointing to short-term price moves backing the quality of your analysis.
    Aug 31, 2015. 01:37 PM | 1 Like Like |Link to Comment
  • Why I'm Buying Aeropostale [View article]
    "At Jan 31 they had $151 million cash, today they have $86 million. With the expected losses they will likely blow through that remaining cash within 9 months. So, they will be in fund raising mode again very shortly and it will likely come in the form of convertible debt."

    You conveniently aren't counting their revolver which is undrawn upon at the end of 2Q despite having high inventories in anticipation of back to school. Total liquidity at the end of 2Q is over $300M.

    You put the guidance for 3Q at a $20-$25M loss roughly. Given that cash expenditures are lower than accounting expenditures due to lower capex, and a likely reduction in working capital. That's not much of a cash burn.

    They were cash flow positive in the fourth quarter a year ago, and this year have clearly improved merchandising. So it's likely they will be cash-flow positive over the next six months.

    Explain to me how a company with over $300M in liquidity, that will likely be cash-flow positive over the next six months is going to have to go to the capital markets in nine months?

    "According to the Morgan Stanley report, “Management is hoping for a 2H15 turnaround, but we think it is unlikely ARO can earn a profit again.” However, Greenberger believes that even in the optimistic scenario that sales stabilizes, Aeropostale was unlikely to return to profitability, given its meaningful SG&A deleverage. With its lean cost structure, there does not appear to be room for the company to make any significant expense cuts."

    Most investment houses will just tell you if it's raining outside, not the chances that it's going to be sunny in a week. Instead of just parroting what some analyst said, read it critically. Does it make any sense that a company with roughly a thousand stores can't possibly have enough merchandise margin per square foot to cover their occupancy and fixed costs?

    The good signs from the call is that the new merchandise, which was released on July 31st, and thus wasn't included in second quarter results. According to the conference call, comps were much better in August, and the stores that had gone through the full back to school cycle with the new merchandise showed positive comps.

    Now this certainly is a high risk stock and I would never tell anyone to put this in a concentrated portfolio. It's quite possible that the early signs of the turnaround won't hold, or that the changes maybe too little too late. But to call this stock an almost certain bankruptcy and that the only way you can make money is by playing 25 to 50 cent trading moves is wrong.

    Geiger has roughly two years to turn this around, and the early signs are good.
    Aug 29, 2015. 01:26 PM | 1 Like Like |Link to Comment
  • FTD Companies: An Undercovered Flower Company With A Wide Moat, 33% Upside [View article]
    Interest acts as a tax shield though so you would have to take that into account when calculating your cost of capital.
    Jul 28, 2015. 08:24 PM | Likes Like |Link to Comment
  • Why I'm Buying Aeropostale [View article]

    By my research I don't agree that Aeropostale is a sure thing. In the end they have to get customers back into the store. I am less confident they can do that after learning more about their customers and the sector. However I think your analysis is a little off. I think they have longer than just a couple of quarters of runway left and things are not as bleak as you paint.

    To your points:

    "- sales are plummeting and expected to continue"

    Though sales are decreasing, same store sales are decreasing by a lower amount.

    " loss estimates are increasing for remaining quarters this year, FY2016 and FY2017"

    I haven't seen anywhere where the company has lowered guidance for the year. When analysts lower estimates it tends to be more post-hoc analysis than anything else. IOW the stock goes lower, analysts lower increase loss projections.

    "- debt load and interest expense is increasing"

    Though technically true, the company hasn't taken on additional debt since the Sycamore offering. Sycamore is a related party which I doubt would be calling the debt, therefore making their preferred and common stake worthless. Though interest expense is increasing, keep in mind that roughly 1/3 of their interest expense is payable in stock, not cash.

    "- cash is being burned rapidly - the $76 million they currently have will likely not last through year end"

    I think they will. Keep in mind that during the first quarter you tend to payoff considerable payables that you incurred in the fourth quarter. The company was free-cash flow positive during the second quarter of last year and I would expect that they were free-cash flow positive during Q215 as well.

    Further, they have $230M revolver that had no borrowings against it at the end of Q1.

    "- tangible book value will likely go negative when quarterly results are posted"

    I didn't see any covenants related to tangible book value. Though building a large book value through increasing retained earnings is important for a strong company, you can certainly survive for sometime with a negative tangible book value unless you have covenants associated with that metric.

    "Sycamore put out their propaganda press release about a year ago saying how ARO was easily worth $7/share. It's funny that with shares well below $2, they are so quiet when they've had plenty of opportunity to make an offer for the company."

    Why would they? If they do that, their convertible preferred stock immediately becomes worthless. Why make such a move when the fruits of the strategy are just starting to be realized?

    In short I don't see how a company with $300M of liquidity and a $1.8B annual sales base is a quarter or two from bankruptcy.
    Jul 28, 2015. 02:35 PM | 1 Like Like |Link to Comment
  • Aeropostale: From Clothing To Closing [View article]
    "Essentially since tranche loan b does not bear interest, the sourcing agreement guarantees a return on the loan."

    Which doesn't mean that Sycamore is going to call the loan if they don't make the purchases. Given that they own 8% of the company, I would sincerely doubt that they will do that. But in any case. Do you really think that a company with $1.8B in sales last year is going to have a problem purchasing $250M worth of merchandise to support that?
    Jul 22, 2015. 04:37 PM | Likes Like |Link to Comment