Comments on: K-Swiss Still A Value Trap?

By: Jae Jun

Jae Jun — Thu, 12 Mar 2009 23:28:07 +0000

Have you also noticed that KSWS markets and begins to target specific niche demographics as well?

First it was free running, and now with regular running shoes, they are sponsoring ironman and triathlon competitions. Nike is definitely the industry leader, but KSWS is always finding ways to run around them to get into the same market.

By: Jae Jun

Jae Jun — Thu, 12 Mar 2009 23:26:04 +0000

Hi Chicago Guy,

You’re right, sales have declined and quite dramatically and it is a worry but here is why I am continuing to hold.
KSWS (the stock) became quite popular by employing the same sales and marketing method as now. Back 3-4 years ago, they were getting good traction with the Classic and they did it by selecting a handful of distributors rather than just throwing it on any shelf. Their recent strategy and plan to get into the running and triathlon market is going to be very tough but they are focusing on getting the product right and established within the athletes before occupying shelf space.

The norm for retailers would be to create the shoe and try to get it into as many places as possible, but KSWS is being very deliberate and sure-footed. This is definitely something experienced management would do.

The special dividend was nice wasnt it? Management know they have plenty of cash and felt they needed to distribute it to shareholders even in a time of uncertainty. This doesn’t follow the tradition nowadays of trying to hold as much cash as possible.

Tf they keep performing the way they are, they can still survive around 3 years.

By: Chicago Guy

Chicago Guy — Thu, 12 Mar 2009 22:31:21 +0000

I own some shares too, but I’m worried. Yes, the balance sheet looks excellent, but sales have declined from $500 million to $340 million from 2006 through 2008. One has to wonder whether an economic rebound can help this firm. How long can such declines in sales continue before they burn all their cash? And what was that recent special dividend all about?

By: Jae Jun

Jae Jun — Mon, 09 Mar 2009 20:56:10 +0000

Good point Jeff. That’s similar to how I think about net nets and cash companies.

The only thing that I am concerned is that KSWS is the type of company that does bad with the economy but also does well if the economy is healthy. I would prefer a business that still manages to make money in both hard and good times.

Will be selling KSWS as soon as it inches close to my sell target.

By: jeff

jeff — Mon, 09 Mar 2009 04:25:10 +0000

Here is an idea that I have been wanting to bounce off someone for a while.

Something that I like to look at for these cash rich companies is “how long can they not sell any product, and still pay their executives.” While this is pretty simplistic (and, like so many metrics is not a case for buying or selling), it can help make the case for some companies, and can eliminate others…

2 examples:

JOB can burn through all their cash in a few quarters, despite trading for a fraction of it…

K Swiss can pay their executives (the last people that will take a pay cut), sell no shoes, and still stay cash solvent for roughly 2 years… That seems like a company that will be surviving to me!

jeff’s last blog post..Someone Changed Jeffrey Macke’s SHLD Article!