In a blow to bargain shoppers that would have been unthinkable just a few weeks ago, uber-fast growing discount apparel retailer Steve & Barry's is preparing to file for bankruptcy, according to The New York Times. The company has grown rapidly with its 50,000-100,000 square foot stores offering extremely cheap clothing aimed at college students: NBA-star endorsed basketball shoes for $8.98 (Starbury's, shown right), clothing lines endorsed by Venus Williams and Amanda Bynes, and a Sarah Jessica Parker line as well.
The company is reportedly discussing a possible deal with Sears Holdings (NYSE: SHLD), but that company isn't in such great shape either. Steve & Barry's debt load appears to be making a sale impossible without the benefit of a bankruptcy filing.
It's been a rapid fall from grace -- not so long ago, the company was the darling of mall operators looking to fill vacant big box locations. They lured Steve & Barry's with large upfront payments that kept the cash flowing for awhile. But once those were exhausted, the stores weren't profitable enough on their own.
I hold out hope for this company; it's a fantastic idea and, in some form, I think it will live on. It's my hope that at least some of the stores can be salvaged, and if not, there's always the internet. Because of its focus on retail growth, Steve and Barry's currently has no e-commerce site -- none. If someone is able to acquire this one off the bankruptcy scrapheap, I would expect that to change.
Take it Private! is a series looking at one company each week that, in my opinion, has no reason for being public. To find these companies, I screen for the following:
high insider ownership
a history of solid profitability
a paltry Price/Earnings and/or Price/Cash Flow multiple
a stagnant stock price accompanied by low volume indicating a lack of interest in the stock.
My purpose in highlighting these companies? This screen can be a good way to find deep value stocks, especially companies that may be attractive to a strategic buyer, private equity firm or management-led buyout at a premium to the current share price. However these profiles should not be interpreted as a recommendation to buy a certain stock. Let's take a look at Rex Stores (NASDAQ: RSC), a stock that I've followed with interest since 2004. Rex Stores owns and operates 111 electronics retail stores in 34 states, a business that has struggled in the face of lower-priced competitors from Best Buy (NASDAQ: BBY) to Wal-Mart (NYSE: WMT)
MicrocapTrader made a compelling and difficult to refute argument about the stock's value in this post from April of 2007: "In any event, assigning a proper valuation to RSC's property brings its tangible book value up to ~ $15 per share without even considering its inventory, worth another $6 per share at its carrying value."
With Belgian-Brazilian InBev seeking to take over Anheuser-Busch (NYSE: BUD), it's hard to see why it would have political ramifications: if BUD's shareholders and board determine that it's in their best interests to sell, isn't that a corporate decision? And don't politicians have better things to opine on?
Apparently not. Democratic Senator and presidential candidate Barack Obama told Reuters that "I do think it would be a shame if Bud is foreign-owned. I think we should be able to find an American company that is interested in purchasing Anheuser Busch if in fact Anheuser Busch feels that it's necessary to sell."
I'm an Obama supporter, but I'm not sure what the point is in wading into this one. Public companies have a responsibility to shareholders to be agnostic when it comes to foreign takeovers -- if that produces value, that's what they should do. When Barack Obama uses the pronoun 'we' to describe the strategic direction of a public company, I start to get a little worried.
Like most retailers, J.C. Penney (NYSE: JCP) is struggling. Its stock is more than 50% off its 52-week high and the company recently announced it intends to slow its expansion plans.
On Monday, the company announced the launch of Dorm Life, a "comprehensive modern lifestyle brand for today's design-savvy young adults." As the incredibly uncreative name would suggest, the collection is aimed at college students looking to furnish dorm rooms. Sample prices include "$3.99 for a bath towel, $24.99 for window panels and $29.99 for a table lamp to $39.99 for a comforter, $59.99 for an ottoman and $149.99 for over-the-bed storage."
J.C. Penney is not going to succeed or fail based on a line of student-oriented furniture -- it's far too big of a company -- but it's hard to see how this brand will work. The prices are substantially higher than similar offerings from Target (NYSE: TGT), and I think that Target probably has stronger brand equity among college students than J.C. Penney. The name seems wrong too -- the average J.C. Penney shopper is neither young nor hip (from what I've seen in the stores), but that's who it needs to attract with this line, and this whole idea seems to lack spunk -- even the website is putting me to sleep.
If this is how J.C. Penney plans to catch on with younger shoppers, I'm not impressed.
Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne -- sometimes referred to as the clown prince of online retailing -- has never managed to report a profitable year for his company, in spite of years of optimistic projections.
You might think that a CEO would take responsibility for his company's failures after years of over-promising and under-delivering. Heck, he might even lose his job!
But not Byrne, who is also chairman of the board and owns 28.7% of the company. I would speculate that if he did not have such a large stake, he'd have been pushed out years ago. Instead, he uses his place at the helm of a money-losing company to propagate his theory that there is a vast plot against his company, involving naked short selling (brokerages executing sell orders on behalf of short sellers even though they haven't located any actual shares for sale, potentially (theoretically at least) driving the stock down when shareholders aren't selling -- here's more from the SEC on this stuff), crooked journalists, stock bashers, and a sith lord, although he recently conceded the sith lord doesn't exist.
In one of the least convincing editorials in recent memory -- no small accomplishment -- Service Employees International Union international president Andy Stern argues that "short-term capital infusions from private-equity funds will only make the banking crisis worse, by encouraging risky behavior and abusive banking practices."
He's so wrong. Risky behavior is encouraged by compensation systems that reward returns regardless of risk, supine directors lacking true independence, and an ownership structure so diffuse that there is no one to enforce accountability.
A private equity fund with a large equity stake and no ulterior motives -- they make money from increased shareholder value, not fees and bonuses -- who paid cash for their shares is the best thing for shareholders. The one valid point that Stern makes is this: "It's hard to imagine private-equity funds resisting the urge to double down on the tactics banks have used to drive profits in recent years -- unfair lending practices, higher fees, and exorbitant interest rates on credit cards and other consumer products."
That's probably true -- private equity funds may push public companies to improve their profitability, but that's their job. Consumer protection is the domain of regulators, and publicly-traded banks have a responsibility to increase their profits as much as possible within the confines of the law.
We shouldn't blame private equity for lax regulation.
The war of words between Yahoo (NASDAQ: YHOO) and dissident shareholder Carl Icahn is intensifying. Last week, Yahoo attached a PowerPoint-style presentation to an SEC filing, bizarrely raising questions about Icahn's track record as a stock picker.
Now Icahn is back with a new letter, issued as a press release titled Icahn Issues Open Letter to Shareholders of Yahoo. Icahn confirmed that he has been in frequent communication with Microsoft (NASDAQ: MSFT) CEO Steve Ballmer over the past week. Icahn wrote that "Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo!, such as either a transaction to purchase the "Search" function with large financial guarantees or, in the alternative, purchasing the whole company. He stated that Microsoft would be willing to enter into discussion immediately if the new board that has been nominated were elected."
Lest you think Icahn is blowing smoke, Microsoft followed up with a response to Icahn's statement issued five minutes later, saying, "We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the "Search" function with large financial guarantees or, in the alternative, purchasing the whole company."
This should sway a lot of investors over to Icahn's side in the proxy fight. With its stock having been a weak performer over the past five years, the company is clearly in a position where it needs to be considering strategic alternatives. Microsoft has made it clear that it is not interested in working with the current board on a possible deal and it's in the best interests of shareholders that the company be represented by people who are willing to do what is right for them.
I think we can start the countdown to CEO Jerry Yang's departure to spend more time with his family and charitable endeavors. The market seems to agree, with the stock up nearly 10% MOnday.
MGL Asset Management Group's press release purporting to offer $7.25 per share for Krispy Kreme Doughnuts (NYSE: KKD) was pretty quickly debunked as illegitimate and, very probably, an effort to hype the stock for a quick buck. Jon Ogg reported on the mysterious offer on our sister site, BloggingBuyouts.
The stock jumped on the news of the offer, but quickly gave up all the gains and then some after media and analyst reports dismissed the offer. But anyone who jumped on the stock at the sight of the press release got burned.
How can you prevent this from happening to you? A good rule of thumb: When you're looking for information on material developments, look to the SEC filings. The offer was made solely through a press release -- something that anyone with a few hundred bucks to pay the wire fee could send into the hands of millions of investors in a few minutes. Until you see something about the "offer" in the SEC's Edgar Database, it should be regarded as a rumor. I wrote about a similarly non-materializing offer at Trans World Entertainment (NASDAQ: TWMC) back in November.
Another solution is to leave the "in-play" trading to the pros -- it's all about information and you're unlikely to have an edge. If you see a news item that a company has received an offer, don't jump in.
The Wall Street Journal's lead (subscription required) tells the story without a hint of irony:
The French Banking Commission Friday said it fined Société Générale €4 million ($6.3 million) for failures in its internal procedures relating to the €4.9 billion loss linked to an alleged rogue trader fraud.
I'm all for regulating being tough on corporate governance, but this fine is a head scratcher. Isn't losing $7.7 billion a sufficient punishment for failures in internal procedures? Do we really need to tack on another $6.3 million. Is this supposed to serve as a deterrent? I can imagine the boardroom discussion:
"Ya know how we lost $7.7 billion?"
"Yeah! Who cares? It's just money."
"We're being fined 1/10th of 1% percent of that amount as punishment for it."
"Oh dear! We better get cracking on fixing our internal controls!"
I'm just not sure what the point of this fine and, by fining the company, the only ones who are hurt are the shareholders, albeit not on a material scale. This fine is the equivalent of giving time out to a child who just got hit by a car to teach him not to cross the street without looking both ways.
Unfortunately, the most serious imperfection that Janjigian uncovers is right on the cover: Buffett's complexion is pasty, his eyebrows could use a good waxing, and he could stand to hit up Procter & Gamble for a couple boxes of Crest Whitestrips.
Like most books on Buffett, this one explains his methodology -- buy easy to understand business and hold forever -- and then, somewhat uniquely, tries to poke holes in some of his ideas. The problem is that most of those holes relate to Buffett's philosophies, but most have nothing to do with the way he manges Berkshire Hathaway (NYSE: BRK.A). There's a lengthy discussion of what the author thinks Buffett is wrong about the estate tax, and he also questions Buffett's insistence that stock options should be expensed upon issuance -- but are those really the ideas that people look to Buffett for?
Barbara Ehrenreich is one of the best, decidedly liberal, journalists going today. However you felt about her support of big government solutions to problems of poverty, Nickel & Dimed was a captivating account of what it's like to live on minimum wage. Going undercover, Ehrenreich worked as a waitress, Wal-Mart employee, maid and more, in an effort to show the indignities of the underclass.
With her latest book This Land is Your Land: Reports From a Divided Nation, she seems to have gotten a bit lazy. First of all, it's not really an original book at all; much of the material is pulled from columns she's written for the Los Angeles Times, New York Times, The Progressive and The Nation. You wouldn't know that unless you read the acknowledgments on page 237.
Onto the content itself: the book is a series of more than 60 "rants" on various political issues including health care, education, social issues, the war in Iraq and corporate greed. I find myself agreeing with her on most of these issues, and her snark is nice, but this is not the brilliant journalism that I've come to associate with her. These read like blog posts, and the research often appears to be shoddy: she criticizes Stan O'Neal for presiding over "$8.4 million" in mortgage-related losses. She was too kind: it was actually about 1,000 times that amount.
If you're a hardcore liberal and like to read Molly Ivins and watch Michael Moore, you'll like this. If you're looking for the trenchant social commentary of some of her earlier books, look elsewhere.
Publicity whore Donald Trump -- who has been married three times and is now married to a woman more than 20 years his junior -- is criticizing Anne Hathaway for breaking up with Raffaelo Follieri amid allegations that he is a con artist.
Trump opined that "She hasn't remained very loyal to him, has she? So when he had plenty of money, she liked him, but then after that, not as good, right?"
Right: women should stand by their men when they're exposed as liars and con artists. I guess that the reason he feels that way is that if women didn't stay in relationships with phonies, he wouldn't be able to keep a lady! Here's the thing Donald: do you honestly think that your latest wife, Melania, is with you for reasons that have nothing to do with money? Is she in it for the hair? Or your rapidly expanding gut? Everyone's entitled to their delusions, Donald, but do you really think your wife would stay by your side if you were arrested on charges of fraud? I doubt it.
Here's the personal finance advice: integrity is generally not compartmentalized. If you're in a relationship with someone who lies to other people to get their money, or lies to you about money, that's a serious form of infidelity, and likely indicative of other problems: liars lie because they're liars.
The idea of Donald Trump giving relationship advice is almost as ridiculous as the idea of him giving business advice, given how poorly so many of his ventures have done. I leave you with this video of Rosie O'Donnell explaining everything that is wrong with him.
Sounds like an impressive offer, right? Well yeah, except that the rug costs $149,999.99. Chairman and CEO Patrick Byrne said that ""Of course you can't ignore the offer to ship the rug for $2.95 . That policy keeps our customers coming back and clearly, the person who buys this rug will enjoy great value."
Patrick: a lot of places would ship a $150 thousand rug for free. With shares of Overstock down about 5% as I write this, the press release doesn't seem to have captured the imagination of investors. It hasn't sold the rug either. If you're interested, you can buy the rug here.
For a look at Patrick Byrne's bizarre conspiracy theories, check out this item from Gary Weiss.
The story of recently captured hedge fund crook Sam Israel just keeps getting weirder. First he faked his suicide and went on the run, leaving behind a message from the TV show M*A*S*H. Then he turned himself in in western Massachusetts.
Now he's telling the judge that he actually did try to commit suicide but failed. Swallowing morphine tablets and fentanyl didn't do the trick: "I ate the balance of my fentanyl patches because I thought it was better to do myself in than to turn myself in. I woke up battered and bruised and I realized God didn't want me to do that and I turned myself in."
Ah yes -- an obligatory reference to god thrown in for good measure. It looks like we can add Mr. Israel to the long list of "born again until you're out again" criminals.
The list of things Israel stinks at keeps growing: he lost a ton of investors' money running a hedge fund, then got busted when his cover-up efforts failed. Then he tried to kill himself but failed then tried to be a fugitive but failed at that too.
House of Taylor Jewelry Inc. (OTC: HOTJ) is closing up shop, according to The New York Post. Elizabeth Taylor and Kathy Ireland, the company's celebrity spokespeople, have severed their ties with the company, leaving New Stream Secured Capital to forage for the $11 million it's still owed.
Taylor and Ireland reaped generous license fees for their participation in the venture and also owned a combined 49.5% stake in the venture.
Having debuted at $4 per share in 2006, House of Taylor closed on Tuesday at less than 4/10th's of one penny. The failure of this company could hardly be considered surprising. The company's large debt load makes this a tough economic environment to execute a turnaround and it seems doubtful that has-beens like Kathy Ireland and Elizabeth Taylor have sufficient selling power to justify their licensing fees.
Looking through the S&P list of jewelry companies, I'm having trouble finding one whose stock has been up over the past 52 weeks.
In a blow to bargain shoppers that would have been unthinkable just a few weeks ago, uber-fast growing discount apparel retailer Steve & Barry's is preparing to file for bankruptcy, according to The New York Times. The company has grown rapidly with its 50,000-100,000 square foot stores offering extremely cheap clothing aimed at college students: NBA-star endorsed basketball shoes for $8.98 (Starbury's, shown right), clothing lines endorsed by Venus Williams and Amanda Bynes, and a Sarah Jessica Parker line as well.
Take it Private! is a series looking at one company each week that, in my opinion, has no reason for being public. To find these companies, I screen for the following:
With Belgian-Brazilian InBev seeking to take over 
Overstock.com
With all the books that have been written about Warren Buffett, Vahan Janjigian's 
Barbara Ehrenreich is one of the best, decidedly liberal, journalists going today. However you felt about her support of big government solutions to problems of poverty, 
With its stock trading down significantly yesterday, the good folks at 
McDonald's continues its coffee crusade
Cramer on BloggingStocks: Paulson and Bernanke step up to the plate
Google's $1.7 billion YouTube deal going down the tubes?
