Scheid Vineyards: An Extreme Undervaluation Hiding in the Dark

Scheid Vineyards produces and markets wine. And, their operations cover around 4,200 acreages, with ten vineyards offering 29 grape varieties. For the first 15 years, Scheid was a grape farmer selling its harvest to wineries. The company was established in 1971 when Al Scheid acquired his first property in Monterey County.

SVIN went dark in 2016. Therefore, a 15-12G was filed with the SEC to avoid the cost and distractions of SarbOx compliance. The move was negative for shareholders as a going dark transaction causes illiquidity from a reduced float, larger price spread. And difficulty obtaining financial data from a majority-owned and managed family operation.

The investment thesis is simple but FAR FROM CERTAIN. The rationale, it’s a deep discount to the sum of its parts with a future focus on improving existing operations with a branded wine.

Price=$15.75 ; EV per share= 128.60 ;Market Cap=16.71M ;Enterprise Value=136.49M

52 Week Range= $13.79 - $23.25 ; 52-Week Chg = -25.00%

TB Per Share=29.12; P/TB=.52, EV/Rev=2.58 ; P/S=.25

I believe my numbers are accurate, backing into the market value using the shares outstanding. But multiple financial sites have different MC values.

Google finance Market Cap = 11.03M, Yahoo=32.881M, OTCMarkets = 11.461M,Morningstar =  15.36M, Reuters = 11.03M

I am bullish as it trades below intrinsic value. But, RECOGNIZE that offsetting the asset's fair value is a capital-destroying family-held company. For example, shareholder equity declined -30.33% or -11.206M over the prior 24 prior quarters. EBIT aggregated over the same 24 prior quarters was -10.564M, EBITDA +24.433M.

Below is an attempt at a fair market NAV per share estimate. I started with reported book values (04/06/21) to arrive at an estimated fair market value. No market premium was placed on the existing operation (modern winery) but instead, my guess at conservative market values in a fire sale.

Scheid Vineyards has much higher ownership of vineyard acreage to enterprise value versus their public peers. 

.

 

Opportunities:

In addition to Vineyards and a state-of-the-art processing plant, there is an additional 123 acres of non-agricultural land now zoned for residential development in Greenfield City Monterey County, California. The market value (my guess) is around 10M to 15M.

Vision Statement: "By 2025, Scheid Family Wines will become one of the most recognized wine producers in quality, innovation, and sustainability in the world."

The assets trade at a fraction of market value. Appreciation from real estate and modern production facilities (new wind turbine power) provides an inflation hedge and cushion to help fund/stabilize as they further develop retail/commercial operations.

Strategic shift to a branded business, emphasizes finished goods over selling inputs. I wrote my thoughts above before Friday's 04/02/21 announcement. "Scheid Family Wines Announces Sale of Three Vineyard Properties." "announced today that it sold three of its vineyard parcels for $33,000,000 in consideration, which includes the buyer assuming $20,000,000 of the Company's debt that was secured by the properties. "

https://finance.yahoo.com/news/scheid-family-wines-announces-sale-100000205.html

A positive valuation discount compared to its closest public peers; CWGL, WVVI, New IPO NAPA, and Treasury Wine Estates ASX:TWE. Further, SVIN multiples are near historical lows for P/B, P/S and have a higher land and building ownership to its enterprise value.

The inventory book value is 53.08 per share. And, the recorded accounting value is below its fair market value. Scheid's wine retails from $35 to $185 per bottle. Further, lower margins sales for private labels sold in supermarkets such as Kroger, also cruise lines and airplanes.

https://www.scheidvineyards.com/Wines

Risks:

The grape business is risky; from planting to harvest, bottling and customer sale. Weather, supply, quality factors are out of Scheid's control.

The fair market value of existing tangible assets is substantial. Still, it's financially weakened from excessive debt issuance and interest expense over the years, Coupled with declines in gross margins, revenue per share, and multiple years of operating losses. The company continues to burn cash, reducing the terminal value of existing real estate holdings-a capital-destroying operation for the past decade.

No evidence of any self-dealing. But it's a risk.

Catalysts:

Management makes financial statements and operational transparency more accessible to the public. The market will slowly recognize its value.

After my original write-up, Scheid reported property sales on April 2. The press gave the stock visibility, and the price slowly reacted positively. "Scheid Family Wines Announces Sale of Three Vineyard Properties."  A fraction of their total asset ownership.

https://finance.yahoo.com/news/scheid-family-wines-announces-sale-100000205.html

A continued focus towards selling a branded wine over Grapes. Hence, improving intrinsic value.

A lease buyback or sale of vineyards and relisting on NASDAQ to raise capital and improve market multiples.

LONG:SVIN

Tandy Leather’s delisting creates an extreme value opportunity

Summary

* Tandy Leather is an absolute, historical, and relatively cheap valuation anomaly. The only national brand in a highly fragmented industry.

* Two decades of reporting consistent profits, high double-digit ROIC, and a compounding book value. The progress was stalled by accounting irregularities from inventory valuation and Covid pandemic.

* Amazon-resistant as the customers want to touch, smell and feel the product.

* Ownership of unencumbered real estate with a tax assessment value of around 8 million.

* Retained earnings per share increased 80.10% over the prior 5 years from December 2013 (4.06) to MRQ (7.32). In contrast with these intrinsic value improvements, the market price declined -68.74% over the same time period.

* Friday (11/13/20) an 8k filing was published. Comments include the following, positive YOY growth in September and October, anticipating the completion of the audit, re-listing on the Nasdaq, significant progress on consumer-facing initiatives, systems improvements, new web platform, centralized eCommerce, digital marketing, and other investments.

Tandy Leather (TLFA) is an illiquid nano-cap specialty physical store retailer in the dying niche of leather crafting. TLFA sells leather, leather crafts, and related supplies. It's in 42 states, 7 Canadian provinces, 115 North American stores. Spain is the only remaining location outside North America.

Inventory errors impacting multiple years were uncovered during December 2018. This discovery forced the restatement of financials. NASDAQ delisted the stock in August 2020. Yet, Tandy's delisting caused selling and created an investable opportunity. The stock is oversold for a consistent historically profitable, and asset rich company. A new CEO hired at the end of 2018 with a prudent capital allocating board now drives the Tandy opportunity.

Opportunity: Tandy's deep discounted valuation is absolute, historical, and relative.

The liquidation value of existing tangible assets is enough evidence to invest. However, the opportunity is more significant. A talented new CEO, the return of safe retail store shopping, Amazon resistance, and the material company ownership by the board will help move valuation higher. Additionally, the current delisting eliminates around 1.5 million in annual costs. This change alone improves EBIT by double digits. Although, after the restatement, relisting is likely to occur on the NASDAQ.

.

Tangible asset breakup value, excluding the sale of their operation.

Notes on the above table.

In August 2020 the 8k reported limited financial data for the period ending 07/2020. Cash balance was 11.50 million or 1.28 per share. Inventory balance reported the year ended December 2018 was 30.57 million or 3.85 per share. I reduced the value by 50% for this analysis. Ownership of unencumbered real estate with a tax assessment value of 15,781,117 for 2018. But in 2020 they report 6,238,940. Strange, a large tax value drop for Houston. Source: Tarrant County Tax Office

Total liabilities were 12.68 million or 1.40 per share.

This simple analysis gives us an ultra conservative fair market value for net tangible assets of 2.35 per share.

TLFA has compounded intrinsic value for years. Yet, the enterprise value declined sharply. The table below shows the irrational market value disconnect.

Notes on the above table.

Ten years of consistently profitable operations for the table above. The opportunity is obvious. ROIC averages 14.36%, retained earnings per share increased 181.68% over the ten-year period from 2010. Tangible book value per share improved by 133%. Yet, the enterprise value per share DECREASED -32.82% over the same ten year period. See more with the above table.

Additional factors listed below impacting a future higher stock price.

Tandy is illiquid and ignored with no analyst coverage. Its the only national retail brand in a highly fragmented industry. Further, CEO Janet Carr developed a strategic path with reported tangible progress before COVID and accounting irregularities.

Tandy Leather is Amazon-resistant as the customers want to touch, smell, and feel the product. The stores offer a continuous flow of classes. Hands-on help with projects/repairs from skilled staff. Endless positive 4.75 average customer reviews on Yelp - "level of service is unheard of these days," "Never met more kind and helpful employees in retail," "people are fantastic". Also, management owns 42.20% of the shares outstanding. Board member and value investors Jeff Gramm/Bandera Partners own 32% of share outstanding at an average price of ~ $8.44. Board member James Pappas/JCP Investments (9.60% at an average price of $7.50).

June 2, 2020 Management Presentation 

The presentation graph above shows the vast opportunities for growth that exist for Tandy with hobbyists and businesses.

Risk:

A Covid resurgence during winter 2020 weakens its financial position. Sales continue their slow decline as their niche shrink. Additionally, difficulty in finding skilled labor and higher associated payroll costs. The growing cost to maintain a national retail storefront.

The legal, consulting, temp CFO, severance, and accounting fees for the year-long financial restatement will cost millions. The actual amount is material and unknown.

UPDATE

News report released after the market closed on November 13, 2020, and the above writeup. No material changes to the financial numbers reported above. 

Tandy must restate prior financial statements before full financial results are reported. Therefore, its not reporting regular financial results until the restatement is completed. But, limited financial results were reported on November 13, 2020.

Preliminary sales were approximately $15.8 million. A decrease of 3.1% compared to prior year's $16.3 million.  As of September 30, 2020, the Company had $0.4 million of debt and $10.1 million of cash.

Janet Carr,CEO, said, "We were pleased with our third quarter sales performance following the shutdown of our entire store fleet from COVID-19 in Q2.  In the third quarter, we were able to reopen substantially all of our remaining store fleet after the permanent closure of 8 stores.  Strong web sales continued in Q3, even as stores have reopened.  TOTAL SALES GROWTH IMPROVED THROUGH THE QUARTER WITH POSITIVE YEAR-OVER-YEAR GROWTH IN SEPTEMBER AND CONTINUING THROUGH OCTOBER.  While the future remains hard to predict in the current economic climate and with COVID-19 case rates rising again, we have confidence in the overall trajectory of the business."

Financial restatement continues for the fiscal year-end 2018 10-K. And, financial statement audits for the fiscal year 2019 and the first three quarters of fiscal 2020. Tandy will apply to re-list its common stock on Nasdaq following the filing of all of its outstanding reports with the SEC.

Ms. Carr added, "We are looking forward to the completion of the audit of our restated financials, our re-listing on the Nasdaq, and a return to a regular, fulsome discussion of our financial results with investors.  During this period, and despite the distraction and economic environment, we have made significant progress on our consumer-facing initiatives, implemented new comprehensive systems improvements, launched a new web platform and centralized eCommerce fulfillment capability and substantially increased digital marketing, and made other investments in building the foundation for our long-term growth."

Conclusion

TLFA offers a large margin of safety and a deep discounted extreme valuation in this overpriced market. Price alone would be enough due diligence. However, the opportunity is enhanced with the new CEO, NASDAQ relisting, investments in new systems, process improvements. Additionally, investors can wait for market recognition, mean reversion, continued profitability, or certain longer-term favorable corporate action.

Long:TLFA

Mohawk Grp (MWK) - The Renaissance Technologies of CPG E-commerce

Mohawk Group Holdings (MWK) is SPECULATIVE!  Deloitte issued a going concern qualification raising doubt regarding MWK's ability to continue next year. 

High risk with an asymmetric expected reward.

Recognized for exceptional growth and innovation (Inc. 5000 2019 as Fastest Growing Companies ranked 622, Financial Times ranked 114).

Google-backed technology-driven consumer products company. Insider ownership is 55%, showing management's interests align with shareholders.

Consistent high double-digit top-line growth selling for an enterprise value to sales of .37. TTM gross profit of 45.04 million versus prior year of 25.98 million with the current enterprise value of 42 million.

A lucrative SaaS opportunity exists for 2020, management priority.

Revenues increased 56% to $114.50 million from the prior year's $73 million. New 2020 product launch double prior year coupled with SaaS offering. Management projects 2020 revenue of $160 to $170 million. Positive estimated adjusted EBITDA for the third quarter.
                                                                                                                                            

Description:

Mohawk (MWK) is a Google-backed technology-driven consumer products company. The company leverages its proprietary AI research to automate eCommerce tasks - discovering new market opportunities, introducing new brands, and managing the fast-evolving complexity of marketing. MWK sells home appliances, kitchenware, dehumidifiers, air conditioners, related products, and consumer electronics. Products sold under the hOmeLabs, Vremi, Xtava, and RIF6 brands. Online consumers buy through Amazon and other e-commerce platforms, coupled with their websites.

Before Mohawk's IPO in June 2019, Mohawk was one of the fastest-growing private consumer companies recording +100% year or year revenue growth since founding in April 2014. 

 "Our proprietary AIMEE software ideation platform allows us to bring research-driven products directly to consumers quickly and we have a significant opportunity to continue scaling our portfolio and SaaS offerings as consumer online spending habits continue to shift." CEO Y Sarig

Founded= 2014 ; Employees= 156 ; CEO/Founder= Yaniv Sarig   

Market Cap = 37.87M ; Enterprise Value = 42.64M ; Cash per share = 2.01 ; Debt per share = 1.97  Shares outstanding = 17.74M ; Float = 4.99M ; Revenue (ttm) = 114.45M ; 52 Week Chg = -78.60%

MWK develops proprietary technology, AIMEE™.  AIMEE leverages millions of data points during the customers' decision-making and buying process. Artificial intelligence from AIMEE discovers new products and creates an optimal selling process.

AIMEE™ (AI Mohawk E-commerce Engine) is an E-commerce platform that grows Mohawk's owned and operated consumer product brands. Mohawk began Q1 2020 selling AIMEE™ as a SAAS offering. A rigorous data-first approach, coupled with their proven technology and collective experience, generates actionable executable opportunities for other third party brands. Google Ventures's investment in Mohawk is not an eCommerce consumer product vendor. The more in-depth story is their proven technology.

Slides are taken from January 2020 Investor presentation prepared by Mohawk.

Mohawk's opportunities exist for profitable high growth include higher-value products, broader markets (China), monetize AIMEE to third party brands, new products through acquisition, lower manufacturing, and supply chain costs.

 AIMEE™ is the name of their proprietary AI/ML internally developed E-commerce platform.

AIMEE™ = Research + Financials + Trading

RESEARCH = AIMEE explores online channels to discover opportunities for new and existing products. NLP (Natural Language Processing) used to analyze customer feedback. This customer analysis delivers insight into product improvements. Further, AIMEE™ uncovers trends by monitoring the features and functionality of the top-selling products.

   FINANCIALS = AIMEE™'s tracks new product planning, financial projections, inventory, media expenses, real-time income statements, and more.

   TRADING = AIMEE™'s automates marketing strategies and improves with each iteration. The result is an algorithmic solution to maximize product sales.

For more information and a video demonstration visit Mohawk Group. 

Operating results discussed on the March 10, 2020 year-end conference call.

For the fiscal year ended, 12/31/2019 revenues increased 56% to $114.50 million from $73 million for the prior year. Thirty-two new products versus eleven for the previous year. Eighteen new products launched in the fourth quarter of 2019. Also, revenue increasing by 26.6 million or 30% compared to the prior year's fourth quarter. In Q4 2019, 18 new products, though the majority in late December versus three for Q3 2019.

The fixed cost for 2019 was 19.3% as a percentage of revenue or $22.1 million versus 28.70% or $21 million in 2018. The automated business model led to improvement as a percentage of revenue. EBITDA for the fiscal year 2019 improved to a LOSS $19.5 million from minus $28.6 million loss in 2018.

The year 2019-year end cash balance was $30.4 million versus December 31, 2018, a balance of $35.7 million. Operation cash affected by inventory increase from Chinese New Year and potential tariffs. The debt was $37.9 million from a revolving credit facility and a $50 million term loan as of December 31, 2019. Compared to the debt of $30.1 million at the end of the third quarter of 2019. The expected change reflects a planned increased inventory.

A separate SaaS revenue line item reporting in future periods. CEO Yaniv promising comments on their SaaS opportunity.

"very,very excited about the SaaS opportunity, it is - and it's very much of high priority for us

We're having active conversation and negotiations with approximately 46 different companies across a variety of product categories that include large - larger brands and some digital native brands.We already signed a couple of contracts in the first two months of the year. And we really are going to continue to invest in the side of the business and expect to see the base picking up in Q2 and beyond. So very much a priority. We're investing in edge. We've made again a few changes to our product and offering and on the conversations,  we're having so far is exciting."

Management expects 20 new products in the first quarter of 2020. And double the products launched in 2019. For 2020, management is projecting revenue of $160 million to $170 million, and expects a positive adjusted EBITDA in the third quarter of 2020.

Conclusion:

I'm bullish on speculative Mohawk Group. They push past the auditor's negative opinion with their double-digit growth, unique proprietary artificial intelligence coupled with management's industry expertise.

Future dilution is possible to secure management talent and finance growth. However, the predicted value is an asymmetric payoff: short term, contingent on corona's impact on timely manufacturing and new product launches. The fiscal 2020 goal is to reach positive EBITDA.


Note: The April 29, 8k published after article.

“FURTHER, WE ARE CURRENTLY SEEKING TO PRESERVE OUR LIQUIDITY AND CAPITAL RESOURCES THROUGH VARIOUS ACTIONS WHICH MAY INCLUDE NEGOTIATING THE DELAY OF PAYMENTS TO CERTAIN VENDORS THE EFFECT OF WHICH COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS, INCLUDING OUR RELATIONSHIPS WITH THESE VENDORS.”

This significantly raises the risk of holding or buying the stock!

Long: MWK

Spark Networks SE (LOV) Contrarian Musings

Introduced to LOV through my ownership of JDate/Spark Network symbol LOV. Affinitas GmbH merged with Spark Network(NYSE:LOV) in 2017. Then, LOV acquired Zoosk in 2019 for $258 million.

Affinitas GmbH was a small, fast-growing private European company. Affinitas's past financial success financed the merger. It listed on NYSE as Spark Networks (LOV). LOV before the merger known for Jdate. Jdate (LOV) had historical periods of outsize free cash flow. During the ~ two years before the merger financial performance faltered from outdated technology. Zoosk was a private, mismanaged, and failed future IPO. But, when managed, online dating is an asset-light FCF machine. Now NYSE: LOV is the second largest online dating company in North America. The new organization has experienced,talented,proven management.

LOV is a falling knife that doesn't screen well. A nano cap,low p/s and down 59% over the past six months with a historical record of strong outsize free cash flow. Spark Networks, NYSE: LOV is now German based headquarter after the merger.

The price decline began after the initial positive reaction for the Zoosk acquisition. LOV stock price crushed from Affinitas and Zoosk few but substantial long term initial investors sold after accruing years of long term gains. Management released an open letter on the stock decline (click). The six-month ~60% price drop creates an excellent buying opportunity.

Spark Networks has over one million global monthly paying subscribers. It also expects to achieve more than $50 million of adjusted EBITDA in 2020.The current 111.84 million market capitalization undervalues those customer metrics. Headquartered in Germany, Spark Networks is now America's second-largest dating company.

Spark Networks (LOV) is a portfolio of dating sites. Zoosk, EliteSingles, Jdate, Christian Mingle, eDarling, JSwipe, SilverSingles, and others encompass the company (click). Spark Networks formed when Affinitas GmbH and Spark Networks merged in 2017.  Zoosk added in 2019. Affinitas GmbH a small German startup with no presence in North America. But, over the last few years created an NYSE-listed business with over $300 million in total revenue. Its now the second-largest player in North America.

Value institutions purchased shares above the current price during the third quarter of 2019. 

Peak6 adds 1,763,185 shares during November 2019 at $5.60. Increase the position to 2,272,485 shares at an average price of $6.99.

Canaan Partner purchased 4,077,777 shares at an average price of $8.23 during quarter 3, 2019. Down -47.14% from current price. LOV represents 70% of its total portfolio value.

HARBOURVEST PARTNERS new holding during 2019, Q3 502,576 shares acquired at an average price of $8.21.

Osmium Partners added 166,332 shares to raise its stake to 1,412,284 shares at an average price of $7.14. Represent 9.77% of its portfolio and or 5.43% of shares outstanding.

Deer VII own 2,045,318 shares at an average price of $8.21 or 7.86% of shares outstanding or 13.06% of their portfolio.

Spark Networks (LOV)could use further analysis, such as the Zoosk financing details(click). But at this time I'm comfortable with the odds of a future higher stock price.

Spark story from their website. 


Long: LOV

Internet Proof Retailer Trading at a Distressed Price Creates Opportunity.

Build-A-Bear Workshop (NYSE: BBW) is an Amazon resistant hands-on interactive retailer offering "make your own stuffed animal" and related products. The company is managed into three segments: direct-to-consumer, international franchising, and commercial. BBW operates 371 stores globally and 104 franchise locations. Also, products sold on the company, third-party, and franchisee e-commerce sites, including retail locations under wholesale agreements. The hands on interactive experience makes Build A Bear Amazon/internet resistant.

Summary

Build a Bear is moving the correct levers (productivity+ profitability+ capital structure)to drive a higher future ROE and stock price.

Historical and relative extreme deep value discounts for sales, book value, and gross profit coupled with an oversold -82% mean-reverting price drop from year end 2016 and -39% over the prior 52 weeks.

A continued successful business strategy push toward lower capital requirements and revenue diversification by leveraging the brand. This profitable plan to be fully realized during 2020 includes the sizable addressable market, growing commercial segment, international and domestic franchising, Walmart expansion, store within a store concept, vacation spots, eCommerce, and others.

Lower future lease costs and impact on EBITDA expansion is material. The opportunity is driven by a 70% expiration of existing store leases over the next three years. Further, negotiating strength is from BBW as a marquee tenant, Walmart expansion, and store within store strategy all reduce or eliminate many lease expenses.

Year-end tax-loss selling and temporary pressure from opportunistic shorts create buying opportunity.

A Yelp search shows countless detailed positive reviews from fanatical fans. Parents and kids love their BBW experience. Build-A-Bear brand awareness is in line with much larger companies without the same market value. A staggering over 90% of the BBW brand recognized by Mothers.


Fundamentals are improving from their evolving strategy. Fiscal 2020 should recognize returns from investments and strategy focus versus current extreme negative valuation. The current value is priced for near term death. 


Motivated shareholder-oriented owners, David Kanen filed 13D reporting a 9.70% ownership and now sits on the board. Multiple years of favorable insider activity. Point72 reduced its 14% position to 6%.

Capital structure was improved, reducing the share count by 12.50% from December 2014 balance of 17.37 million to the most recent quarter, 15.22 million. Total liabilities during the same period declined by 26.30% or 114.43 million as of December 2014 to 84.34 million (excluding long-term leases) for the most recent quarter.

Valuation:

The current stock price is $2.69, with an enterprise value of 189.30 million or 58.90 million excluding lease obligations. Market capitalization is 40.94 million.

Summary comments on the table above include the obvious fifteen-year low valuations. The current market capitalization of 40.90 million compares favorably to 142.20 million in trailing twelve months of gross profit, 335 million in sales, 81.90 million in equity, 6.20 million in cash, no debt or credit line borrowings. The current tangible and intangible value does not reconcile with negative -43.01% twelve-month stock return trading near a 52-week low for a successful differentiated brand name retailer.Also note the negative attributes of the Z and F score. 

Third Quarter 2019 and related valuation commentary:

The third quarter of 2019 reported sales growth in direct consumer and commercial segments, coupled with improved gross margins. Operating loss improved by 2.3 million, zero debt, no credit line borrowings, and six million in cash.

The Build-A-Bear brand has remarkable brand recognition, with over 90% of Mothers. Further, over eight million joined their email club, and four million active loyalty members represent 20 million customers. Retail locations attracted 45 million visitors and have an added 110 million digital connections.

The profitability strategy includes diversification beyond the traditional retail model. Commercial revenue from third parties requires no startup store capital, rent, and labor, coupled with the opportunity to leverage retail in tourist locations. Additional diversification includes shops inside shops,select Walmart locations. These business moves supports leveraging real estate plans and expands the brand to a broader consumer base, with approximately 60% of the shoppers newly registered to the bonus clubs. Walmart has 22 locations in operation, with additional locations planned during the next fiscal year.

 The company's goals are to continue building revenue beyond the traditional retail model, diversify retail locations to broaden consumer accessibility, outbound licensing, wholesale, and entertainment. Nearly 70% of store leases expire over the next three years, providing additional negotiating leverage is the Walmart and store within a store relationship.

For the current third quarter ended, 54 locations with third-party retail relationships include Carnival Cruise Lines, Great Wolf Lodge Resorts, Landry's Inc., and Beaches Family Resorts, first two locations within a military base, among others. Only the portion paid for the products, supplies, and fixtures reported as revenue.

Additional monetization of the BBW brand includes commercial revenue segment increased by nearly 20%, and continue to execute against recent agreements tied to entertainment and content development. Warner Music, Sony Pictures, Hallmark Channel, iHeartMedia, they expect to realize financial gains from these new entertainment initiatives, starting later in 2020.

Conclusion and Investment thesis summary

Build a Bear is moving the correct levers (productivity+ profitability+ capital structure)to drive a higher future ROE and stock price. The evolving brand strategy requires fewer assets, diversifies revenue sources, and retail locations. The plan includes expanding international franchising, Walmart, store in store, lower lease costs, deemphasizing the direct ownership of retail stores, vacation spots, eCommerce, outbound licensing, wholesale, and entertainment.

The 12.5% share count reduction from December 2014 and 26.30% total liabilities over the same period demonstrate shareholder-friendly and management’s awareness of capital structure critical role for shareholders. Insider ownership is around 7% coupled with insider buying. The largest shareholder David Kanen at 9.70% is now on the board.

The main short term risk is continued trouble in the UK, Walmart roll out fails, further decline in mall locations.                                                                        
Long BBW