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I have owned BKE since 11/98 and I am reviewing my portfolio at year end, including BKE's fundamentals.

The flow ratio from the quarters ending 10/98 to 1/99 to 10/99 has increased from 1.24 to 1.43 to 1.83, respectively. This is largely due to a disproportinate(did I spell that right?) increase in inventory compared to sales. Sales have increased about 10% from the quarters ending 1/99 to 10/99 while inventory has increased by 38% for the same quarters. Sales growth has been slower than previous years, down from about 30%, but increases in inventories have stayed the same. It appears that BKE is having problems moving its product, and its reflected in the decline of SSS. Could this be due to larger competitors grabbing market share?

However, BKE has maintained its gross profit margin at about 36% and net profit margin around 9-10%, with a positive cash flow, while adding 25 new stores this year without long term debt. I am afraid that even these numbers will deteriorate if BKE continues to add new stores without increasing sales and keeping inventory under stricter control. Competition may just be too much, and I am considering selling all my shares.

Any thoughts?

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