I told you last week that I’d have a piece for you on my latest “private equity victim.” I didn’t know then just how good this was going to get.
I released the full version of this piece, with a detailed recommendation, on February 6th for my Zenith Trading Circle members. (Subscribers can go here to get that recommendation now.) At that time, the company was still anticipating earnings, and I anticipated that it was headed for disaster.
I wrote, “[It] pays a $0.80 dividend, which gives it a ridiculous dividend yield of 8.87%. Look for the company to cut the dividend, which costs it roughly $40 million a year [it turns out the number is closer to $50 million – ed.], after another quarter or two of losses triggered by failure of its new strategic plan. A dividend cut will gut the stock even further.”
Yesterday, the company released abysmal earnings for Q4 2016 – same store sales were down 12%, revenue in the US and Canada fell by $41.1 million or 8% from $472.6 million to $513.7 million and even ecommerce sales dropped from 8.8% of the total to 11.4% of the total a year earlier (which is what happens when you raise on-line prices in a cut-throat pricing environment). Also – as I expected – the Board of Directors decided to suspend the company’s quarterly dividend in order to use free cash flow to reduce debt (which will save about $50 million a year but really won’t make a dent in the company’s $1.5 billion debt load).
The stock was down 10% on the news, and since it’s trading at about $7, it still has quite a bit of room to fall.