Friday, June 11, 2010

6/11/10 Midday Report: Retail sales drop as stores still insist on charging money

The market has been relatively quiet today after yesterday's meteoric rise on news less relevant than the Pound-Dong exchange rate (and oddly enough Pound Dong was also the name of Alexis Texas' last movie) or the 93rd decimal of Pi (which incidentally is 2).  In US macro news, consumer sentiment was better than analysts guessed, largely because the survey was taken on payday and was done while Melinda Messenger lovingly massaged consumers' fears away.  The index came in at 75.5 which was up from 73.6 last month and above the median guess of 74.5 and was driven by consumers' stated interest in buying durable goods such as cars and storage crates to put all of their shit in when the repo man comes to take over their homes.  Interestingly enough, while consumer sentiment was up, US retail sales dropped proving once again that actions speak louder than words and all of the data is made up anyway.  Spending fell 1.2% last month driven by auto sales being down 1.7% even though according to the consumer sentiment numbers, peple are looking to buy autombiles.  These two data points couldn't be more diametrically opposed than John Calvin and free will, Hemmingway and adjectives, or Richard Simmons and pants.  Consumers intend to buy cars, but they're not.  Hmmm, maybe because 10% of them are unemployed and another 10% are underemployed or just not looking?  Hey, Money McBags intends to buy a gold plated, diamond encrusted caviar dispenser that runs on the dreams of wide-eyed children, but he is just a few million euro short, but that is just a minor detail.  So University of Michigan, put that in to your ridiculously misleading consumer sentiment survey and report it.  One other interesting data point from the consumer spending numbers warrants mentioning and that is that sales in hardware stores were down 9.3% which likely means that people are spending less time fixing up their houses as they anticipate foreclosure.

In market news, Mary Schapiro is going after high frequency traders as tenaciously as a squirrel (or Ricky Martin) goes after a sack of nuts.  High speed transactions now account for half of the market volume which is as healthy for the markets as Miley Cyrus' singing is to a hemophiliac (because her singing of course makes one's ears bleed).  Money McBags applauds Ms. Schapiro for not letting this relatively arcane corruption of the markets continue without regulation especially as high frequency trading was more negligent in the "flash crash" of the other week than the E! channel has been negligent in the devolution of american culture.  Circuit breakers are now being put in to the market to halt shares of actively traded stocks when they move by +/- 10% in a 5 minute period which means BP stock should be halted on an hourly basis.

Internationally, things are relatively quiet today as the market awaits Greece's impending default which is a worse kept secret than Burt Reynolds' toupee or Lindsay Lohan's implants.  Greece has less ability to pay back their debtors than Athens did of defeating the Spartan-Persian alliance that ended the Peloponnesian war.  Europe continues to hope that the IMF bail out can push Greek's default out far enough so that Spain, Italy, and Amy Winehouse, can get themselves in order before the figurative shwarma hits the pita.  In other international news,  inflation in China rose to a 19 month high with consumer prices up 3.1%.  Given the increasing pricing pressure and the rapid growth, China may start to allow their currency to fluctuate in a tight band, that is until the drummer of the band OD's on heroin and the lead singer shacks up with the 2010 version of Bebe Buell.

In stock news, BP is pondering a dividend cut, something about needing the funds to help to clean up a mess resulting from spilling a fuckload of oil all over the Gulf and ruining an entire ecosystem.  BP shares are now down nearly 50% after they tried to turn the Gulf into their own personal scat film.

Finally, Money McBags promised he would get to MLNK today.  Why?  Because apparently he likes writing about shitty stocks that underperform on a more consistent basis than the Alabama public school system.  MLNK is a global supply chain management company that basically sets up shop next to electronics makers in Asia/Europe/The US.   They manage the shipping process of the electronics makers' products, the rebates and warranties, and then either don't charge enough for their services or haven't figured out how to do them efficiently, hence they lose money.  They also recently bought a company called Tech for Less which sells used and refurbished computers which would seem like a good business to be in given the economy, but this business is only ~4% of revenues and based on how they run the rest of their business, is likely losing money.  Anyway, this quarter MLNK's revenue was down 7% to $213MM and below expectations because their new business is taking longer to set-up and their unit volumes are shrinking as inventories are no longer being added by retailers due to the fact that people seem to have stopped buying shit.  New business revenue was $16MM compared to $44MM in fiscal Q3 last year which is so bad that Bernie Madoff wouldn't even want to fake invest in this company.  With revenue down, gross margin was down as well from 14% to 11% and EPS was a loss of $.08.  However, taking out discontinued operations (though perhaps the whole operation should be discontinued), the loss was only $.03 per share.  Non-GAAP income which is a proxy for EBITDA was $8.3MM, down from $16.1MM and defines the term "fuckawful."  That said, the company has no debt and $161MM of cash, cash equivalents, and broken promises.  Free cash flow was $500k, just below last year's fiscal Q FCF of $16MM, and yes, that was sarcasm.  They did institute a new $10MM share buyback plan which Money McBags appreciates since he will likely be selling his shares so is glad there will be a buyer.  And in the most bizarre ending to an earnings call ever, there were no questions.  None.  Zip. Zero. Nada.  Investors were more silent than an electrolarynx user with a severe case of laryngitis.

So basically the only one who marginally gives a shit about this company is Money McBags since despite their consistently awful performance, MLNK is cheaper than a tattered Rusty Kuntz rookie card (and quick bit of trivia:  "Rusty Kuntz" was actually the pre-production working title for the sitcom The Golden Girls).  The company has a $288MM market cap and $161MM in cash so an enterprise value of $127MM.  Their EBITDA had been as high as $18MM per Q, but this quarter shrunk again to $8MM.  If we annualize the $8MM, they are trading at 4x EV/EBITDA and they previously said they expect business at the end of the year to be better.  Of course last year they said they expected business at the beginning of this year to be better and it has fallen off faster than Yasmine Bleeth's looks, so what they say needs to be taken with a grain of salt, or several grains of salt around a shot glass filled with tequila which is what the management team seems to be drinking before they give guidance.  Money McBags has no idea how to evaluate this company any more as consumer spend is once again going in to the toilet and MLNK has shown less ability to execute than the state of Ohio.  There is basically no good news for this stock on the horizon, they have significantly underperformed for several quarters in a row, and no one is interested in the company.  So basically this is a value investor's wet dream (well, that is if MLNK were going Lucky Pierre between Benjamin Graham and David Dodd, then it would be a value investor's wet dream), or it's a straight up value trap.  Money Mcbags is likely going to dump his shares but it's such a small position (and growing smaller by the day), that he may hold it for the improbable chance that they get better at their jobs.

Enjoy the weekend.

1 comment:

Anonymous said...

I absolutely agree if the sentence "as consumer spend is once again going in to the toilet" should be reality for the coming quarters.
Anyhow if consumer spending is stabalizing or even growing and if - in consequence - retail sales will be stabalising or even growing and - what has been the main problem for the moduslink revenue deseaster - the inventories held by retailors will be growing to normal levels in comparison to former years and in relation to retailor sales (see retail report by Census Bureau/Commerce Department), then moduslink will make good or even "big" profits and the share price should/could triple from now on.
In the 10 Q form 06/09/10 Lawler (CEO) has been reporting again that under normal economical conditions a net operating margin of 5-7 percent is expected. With revenues of at least 1 Billion (under normal economical conditions) this would reflect a net operating income of about 60 Million USD.
So the only question is: Will we ever see an economical enviroment as it was before the crash? The right answer is: Nobody knows when we will see it but we will do so definitely.
So shareholder with patience will be granted - one day.