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Friedman's Falls Again

By Dave Marino-Nachison
March 26, 2004
Shares of Georgia jeweler Friedman's (NYSE: FRM), battered since mid-November amid news that the government was looking into its internal practices (as well as those of competitor Whitehall Jewellers (NYSE: JWL) in a related matter) fell further yesterday, approaching 52-week lows after the Securities and Exchange Commission (SEC) said it is considering a civil action against the company.

Friedman's, to its credit, has never taken a defensive posture in any of its public statements concerning the government's investigations. Yesterday's was no exception: "The company," it said, "believes that this action by the SEC is an important next step toward resolving the outstanding regulatory investigations and plans to continue to cooperate with the staff to try to settle these issues." As a result, investors who've been watching since November have little reason to be surprised by yesterday's news.

The question for investors continues to be whether a beaten-down company such as Friedman's deserves attention as a "closeout" buying opportunity. While current financial statements aren't available -- Friedman's has delayed filing its 10-K -- a look at recent quarterly documents provides some interesting information. At its current market capitalization of around $120 million, Friedman's still trades at a discount to the value of its inventory as of June, as it has for some time.

Competitors Tiffany (NYSE: TIF) and Zale (NYSE: ZLC) -- Zale recently reported solid quarterly numbers -- trade at healthy premiums to their inventory. Whitehall, it should be noted, commands an even bigger discount by this measure than does Friedman's, though this is likely in large part because its cash balance, even net of long-term debt, is substantially smaller than Friedman's. Thus, it might be more seriously affected by any government or legal penalties that might come its way.

Friedman's is in decent financial shape, reported February same-store sales growth better than Zale's, and turned in respectable holiday-quarter topline figures. There's a lot of reasons to be curious about Friedman's, but just one very big reason many Fools should hold back: It's almost certain that investors are waiting for the release of that 10-K not just because of the recent financial information it will contain but also because nobody knows what three years' worth of restated figures will look like.

Until those numbers are known, investors who bet on Friedman's to get moving upward again are working off a pretty iffy hunch.

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Fool contributor Dave Marino-Nachison owns shares of Tiffany.

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Well, as everyone knows, the NYSE has stopped trading on Friedman's. You can now find it under FRDM (Pink Sheet). It's trading for less than $3.00 per share. What happened here is criminal. The books were cooked for about three years and I am not the only investor that lost his shirt due to willful misrepesenation of the truth. I joined one of the class action law suits, but I'm not holding my breath for a big recovery there. Those respossible should go to jail.
Does anyone have any info as to the fundamentals of this company? Without a current 10K and with earnings being re-stated for three years, only God knows!......Good Luck To Everyone......Ykoops
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Thank God somebody besides me at the Fool is paying attention to this company. I'm feeling like a resident of the desert island 'Moronville' for investing in this company. Luckily, I've only been watching since January 2004 and didn't invest until early May at around $4.73 a share. I was expecting a major restatement of inventories, accts receivable and possible entire write-off of the Crescent investment. At the price I paid, I thought I would still be (ok) considering a fair statistical margin of safety.

I am exceedingly anxious to see the SEC restated numbers. This doesn't appear to be THAT BAD of a business. All FRM investors, including Mr. Cohen, must be piqued by the management's foul behavior.

If I learn anything more, I'll try to post in on here.


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I will appreciate any info that you come up with. I bought 1,000 shares last year in the $9.00 range and bought another 1,000 around the top, around $15.00. Fortunately, I did bail out back there a ways except for 200 shares and "limited" my loss to around $10,000.00!!
What upsets me so much, is the three year period of FALSE information by the brass on earnings, etc. As I understand it, they carried a BUNCH of bad in store credit in the accounts receivable (asset) column, instead of writing them off systematically as they went skew the numnbers so THEY, the upper management would be seen in a good light and received (undeserved) bonuses! These folks belong in jail. The Lord only knows how many hard working individual investors had their investments stolen by these crooks.....Ykoops
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