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No. of Recommendations: 3
Noticed a lot of insiders were selling this in the teens and twenties in 2016/2017. One director bought $370,000 in Aug2017 at $7.50.

$7 today. 8.5% divy -- one way or another, that's not going to last.

Amazon road kill?

VL predicts 25-41% annual gains out to 2020-22 though it has a low earnings predictability and they suggest timing is not great right now.
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Prescient short idea on VIC on BGFV 10-11 months ago -- FYI.
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i stopped following it due to the BS having net debt...
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i stopped following it due to the BS having net debt...

Perhaps I am misunderstanding, but I don't see in their history where they didn't have debt > cash since at least 2002.


https://redfieldcpa-my.sharepoint.com/personal/rredfield_rbc...
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i used to follow every domestic retailer
gradually eliminated them
one cut was net debt or companies where I didn't trust them w/capital allocation

I owned it for 3 months in 2010
dropped it off my rotation in 2014
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I spent some time looking at the company, and did purchase it last week. So thanks for the idea.

Here are some notes I took:

We initiated a 1% portfolio position last week, with a cost of $7.10. The 3Q17 earnings were terrible, and it is possible that is reflected in a stock price that was down from $10.95 on August 1, 2017.

The basic thesis is buying a retailer at a low P/E, accompanied by a slight insider purchase. I am concerned with debt levels, although the line was extended until 2022. With a P/E of < 10 we don’t need earnings growth, but we certainly need solvency, and hence something to watch.

Yield is 9.45% ($0.60). Earnings expected at $0.95 which would give a P/E of 6.68X. Dividend pay-out has averaged 44.0% for the last 10 years. The payout ratio was 58% in F2015, and 68% in F2016. Dividend payout ratio expected to be 63% and 60% for F2017 and F2018 respectively. ROE has averaged 12.45% for the last 10 years. ROE was 7.7% in F2015, and 8.2% in F2016. ROE is expected to be 10.0% for F2017 and 10.0% for F2018. ROTC has averaged 9.19% for the last 10 years. ROTC was 6.2% in F2015, and 8.1% in F2016. ROTC is expected to be 9.0% for F2017 and 9.0% for F2018. Average P/E for the last 10 years has been 15.55X. Projected eps for F2018 is $1.00 which equates to a forward P/E of 6.35X. VL gives it ‘C++’ financial strength, and a Safety rating of 4. VL projects a price between $15 - $25 between 2020 – 2022 (10/27/17).

Shares outstanding projected to be 21,760 at December 31, 2017.

Edgar is showing that this is 100% controlled by institutions, but I find that hard to believe. I’m guessing an error on their part, since this is nearly a micro-cap.

Expects same store sales to be in the single-digit range. Same store sales increased 3.1% during 4th quarter of 2016.

“Given the challenging and competitive retail environment, we are pleased to have retained a significant portion of the market share gains that we achieved following last year’s competitor store closures in our markets. While our third quarter same store sales declined from the prior year, we achieved two-year stacked quarterly same store sales growth for the period of 3.8%. For the third quarter, same store sales in our hardgoods category declined in the mid-single-digit range, reflecting the continued reduced demand for firearm-related products, and same store sales in our apparel and footwear categories were slightly down. Despite a highly promotional retail environment, we are also pleased to have grown merchandise margins as we benefited from a shift in our product mix.”

During the fiscal 2017 third quarter, pursuant to its share repurchase program, the Company repurchased 666,609 shares of its common stock for a total expenditure of $6.8 million. For the year-to-date period through October 1, 2017, the Company repurchased 677,109 shares of its common stock for a total expenditure of $6.9 million.

The cost per share of the buyback is $10.19. That is quite a premium to today’s price.

Conference Call Quotes and Notes:


“10% of the Sports Authority locations that have closed in our market now reopened as Dick's stores. Those factors, along with the challenging promotional retail environment and comparative weakness in our firearm-related business, pressure the top line during the third quarter.”

“We experienced a low mid-single-digit decrease in the number of customer transactions and a low single-digit increase in our average sales during the third quarter versus the prior year period.”

“Turning to our balance sheet. Our chain-wide inventory was $309.3 million at the end of the third quarter, up 6.7% from the third quarter of fiscal 2016 when chain-wide inventory was down 9.0% from the third quarter of fiscal 2015. As we discussed previously, the increase in inventory primarily reflects our strategic decision to enhance in-stock inventory levels for key product areas to meet anticipated demand following the market share gains we have achieved over the past year. We feel comfortable with our inventory assortments heading into the winter and holiday shopping season.”

“Looking at our capital spending. Our CapEx, excluding noncash acquisitions, totaled $11.4 million for the first 9 months of fiscal 2017, primarily reflecting investment in store-related remodeling and new stores, IT systems and our distribution center. We expect capital expenditures for fiscal 2017, excluding noncash acquisition, for approximately $16 million to $20 million.”

“Our long-term revolving credit borrowings at the end of the third quarter were $46.4 million, which is up from $22.9 million at the end of the third quarter last year, and up from $10 million at the end of fiscal 2016. Our higher debt levels primarily reflects the funding of inventory purchases to support anticipated demand as a result of the competitive closures in our markets.”

“Our e-commerce business is continuing to grow nicely. It is -- we continue to evolve it, and I mean our goal, obviously, like many, and certainly ours, is to grow it and make sure it ultimately is accretive to our business. We're continuing to invest in the business including website efficiency, advanced search functionality, enhanced check out and other capabilities. The sales trends have been positive in e-commerce and -- but the profitability is clearly not material to our -- wasn't material to our 2016 financials and certainly not material to our 2017 financials. While
we anticipate a healthy improvement in e-commerce sales from the prior year, we still don't anticipate e-commerce to be material to our 2017 sales or profitability. We continue to test and evolve the e-commerce business model, and hopefully, in addition to being accretive, just trying to make sure that we're providing a meaningful shopping channel for our customers.”



Other Notes:

I find the trading from director Honeycutt to be unusual. Hopefully he is a good trader as he bought not too long ago. He seems to buy and sell large amounts of shares, and so far with success. www.form4oracle.com
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you don't think it could be a $0 eventually?
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you don't think it could be a $0 eventually.

Sure has risk to it, especially as debt comes die in 2022. Plus growing inventory could pose issues. I have only read a Q or two, and some reports, so my research is very weak here. That is reflected in what is a small position for me at 1%. Your thoughts?
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unease? that's all

I just sold two dinks the last couple days - total misses with a 12 to 13% loss in one and another 11-12% loss in the another, so I'm a little gun-shy right now and think I need to reassess my dink buying process (one of the losses is far more significant than the other because it was more meaningful as a position size and i relied too much on someone else's research (MRK)). Plus, your process is clearly different than mine and thus anything I write is likely absolutely irrelevant, esp. since I am 100% relying on your notes.

But from your note here

Positive
Low PE
small Insider Buy
High yield (sustainable?)
Q4 comp in single digits vs +3.1 compares
Buys shares (at higher price)

Negative
Q3-17 earnings terrible
Buys shares (at higher price)
Maybe high inventory
16-20m CapEx
higher debt levels
Non-material profit on E-comm side

Don't know
-unease if it is just another dumb commodity retailer who doesn't know any better w/capital allocation
-do ROEs and past PEs mean anything in retail given well-understood changes there? (just asking)

Again, just unease. It could move to $15 in short order for all I know.

--

it is funny - in our personal life, notes like this are always unwelcomed
they are always taken as affronts and you learn with most people to keep your mouth shut because they don't want your advice and it is often misconstrued
you know me well enough that i post this only cause your writeup made me uncomfortable
that's it

wish somebody had seen my writeup on Merck and told me it made them feel uncomfortable...
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Thanks for the response. Very much appreciated. More on that in a second.

do ROEs and past PEs mean anything in retail given well-understood changes there? (just asking)

You would know more than me, as I am very weak in retail. Yet, of course ROE's and P/E could materially contract. I think ROE's are more reflective of the business operations, whereas P/E could just be mostly how Mr. Market feels at the time. Perhaps severe contraction in most industries to mid-single digits, perhaps not. It has happened before, such as 1974 through (but not all years) 1988.

hey are always taken as affronts and you learn with most people to keep your mouth shut because they don't want your advice and it is often misconstrued. you know me well enough that i post this only cause your writeup made me uncomfortable that's it.

I don't get how it could make you uncomfortable. I certainly appreciate your, and all other posters here, who will (I hope), post what they interpret as constructive criticism. So, if that is the reason of discomfort, it shouldn't happen with you to me, ever. If my work was erred or poor or such, I would very much like you or others to discuss it.

Now back to BGFV.

I am not suggesting that you or anyone else ever touch this company, or any company I mention. I merely am looking to share my notes.

I increased our position to a ~2portfolio position. Here is the further reasoning for the increase.

1. The price dropped from ~$7.10 to $6.08, and if I liked it at $7.05, I should like it at $6.08.

2. I asked some friends and family about the store, as they live in the West (OR and CA). They like the store. They feel the prices are a bit better than Dick's, but the selection is much smaller. Yet, they had no issues with the shopping experience.

3. I visited one of the stores in CA yesterday, and was somewhat impressed. I hardly ever shop, and when I buy sporting goods, it is typically from Amazon (running shoes and related) or specialty shops for my snow equipment. Yet, my experience was fine. I spoke with some managers, looked through the store, etc. One employee mentioned that they are like the ACE Hardware of sporting goods. Looking at the store, it made sense to me.

Here are a few more notes of mine after reading the Q today and some other reports:

DB (11/1/17) expects FY 2017 eps of $0.87, and FY 2018 of $0.75, and FY 2019 of $0.87. They also modeled $0.99 for F2020, and $1.14 for F2021.

erating profits were down 31% y/y and are now below where they were two years ago when The Sports Authority was still in business. And the guidance, which suggests another negative comp and EPS down 38% at the midpoint suggests declines will continue.”11/1/17

CFRA (10/31/17) expects FY 2017 eps of $0.88, and FY 2018 of $0.97, and FY 2019 of $0.87.

Review of 10-Q 9/30/17:

Current ratio is healthy at 2.07X.

Long-term debt increased to $46M, from $10M at January 1, 2017.

Shareholder equity is $203,486. Tangible equity is $199,053.

Book Value is $9.52 (using 21,355 shares). Tangible Book Value is $9.32.

Generic Cash Flow Calculation:

	                        October 1, 2017	         October 2, 2016

Net Income $14,054 $9,192
Add: Depn. and Amort. 14,324 14,289
Amort of Debt Issue Costs 130 132

Capex ($11,374) ($10,215)

Free Cash Flow $17,134 $13,398
FCF per Share $0.80 $0.62
Dividends Paid $9,840 $8,229




Thank you very much for reading and responding!
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kinda gonna wrap this up, but:

*why did it fall from $7.10 to $6.08. There must be a reason, right? The negative comp forecast?
*gotta admit - if I'm looking at the current ratio as an important number, I'm likely not interested in the stock. All I look at with a retailer on the BS is cash and debt and inventory. Nothing more.
*agree, anecdotal shopping experiences are valuable, but does the comp history validate the enthusiasm?
*up to you - I don't pay attention to analyst estimates w/retail (then and now) except to see what assumptions are built into the numbers (sales rates, margin levels).

Just unease - enough from me
different style obviously - for me, a write-up that doesn't excite me is often an indicator that the stock won't excite me either, but this is all personal and conjecture and all that
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http://investors.nike.com/investors/news-events-and-reports/...

Nike in its recent Investor Day presentation (see link to transcript) suggests that digital revenue will move from 15% to 30% in the next 5 years.

In the same transcript Nike also states that "undifferentiated" retail - 60% of sales - will decline to 20% over time. Of course, if "over time" is a long time and if "undifferentiated" retailers like Big 5 can make the leap to "differentiated" - whatever that means - maybe there's a lot of upside.

Of course, a stock doesn't decline 60% year to date and trade at less than book value because the future is easily, clearly positive.

It's an intriguing bet - can sales or gross margins be maintained or improved over the next 5 years?
Keep sales growing at inflation and maintain or grow the gross margin to 32.5-33% - make a lot of money on the stock. But if the gross margin declines to 29.5-30% or if sales decline a few percentage a year, oy vey.

Not my kind of gamble but I can't argue against the risk-reward tradeoff to those who place chips on the felt. Good luck!

ET
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