Friday, September 17, 2010

Signature Eyewear Update.

Having addressed Signature Eyewear's complete lack of transparancy in regards to the Bebe contract in a previous post, the company finally came clean in their most recent 10Q filing:

"Our licenses for bebe and Hummer eyewear expired June 30, 2010. Under the license agreements, we may sell existing inventory of those lines in the United States through December 31, 2010. In addition, we may continue to sell our existing inventory of bebe eyewear internationally through December 31, 2011. The loss of these licenses will have a material adverse effect on our revenues. In the fiscal year ended October 31, 2009, and the nine months ended July 31, 2010, these lines represented approximately 45% of our net sales.

We are actively taking a number of actions to replace the bebe and Hummer revenues. These include: (i) increasing our marketing and sales efforts of our other eyewear lines; (ii) increasing our efforts to obtain other third party licenses; (iii) increasing our efforts to develop our proprietary Signature lines; and (iv) considering the viability of marketing other fashion accessories. We are also taking actions to reduce operating expenses to offset as much of the loss of revenue as possible. No assurance can be given that we will be successful in these efforts to replace the lost revenues. If we cannot replace a material portion of these revenues over the next twelve months, we will have to implement drastic cost cutting measures in an effort to maintain profitability and positive cash flow."

Looking back at my brief experience with the company, I can't blame the CEO for not returning my calls or emails. Would you want to talk to a guy that was curious about something that you probably knew you were going to fail at? I am guessing 'no'. Furthermore, when you own a significant chunk of the company, it is probably all the more painful to have to deal with such an unfortunate circumstance (which happened with a Coach contract years back, as well). As a side note, the company has shed over 1/2 of it's market cap in recent days.

Somewhat sadly, this shedding of market capitalization probably is not enough given the company's bloated compensation structure, especially when looking at what future revenues will be and how bad of a job executives did in retaining very valuable contracts. All I know is, is that I wouldn't want to be a debt holder of SEYE and would rather gamble my money away at a mini-casino owned by Nevada Gold than own SEYE common... I would not only have a good time, but also probably come out with more money in the end! :)

Generally, I don't like these sorts of middle man businesses which rely on a few customers to generate all of their revenues. In the case of Signature, you can kiss almost 1/2 of their revenues bebe-bye (get it!? haha!). Granted, there are always exceptions to the rule; I once bought a regional airline that wasn't burning much cash and was trading at something crazy- like, 1/10th of tangible book.

Regardless, I am looking forward to see if the company will be able to stay solvent. I am guessing that it will, but will have a much lower market price than at present. Who knows? Maybe if the stock gets hit much more, management will take it private, and then suddenly, the company will announce some new contracts? It isn't like that sort of thing never happens with Pink Sheet and OTC companies.

"In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don't have the first, the other two will kill you." W.E.B.

Disclosure: I (very enthusiastically) own shares of UWN, but own no other securities mentioned. This is not investment advice. Always do your own research when contemplating doing anything that I so much as muse about on this blog, or even in real life...

4 comments:

Robert Pio Molloy said...

Efficient markets, perfect information? What a pile of nonsense! Judging from the share price, it looks like you and I were the only ones that bothered to read the 10q's properly. Anyway, it really is a shame that they've lost these contracts. They were a $2 million company that easily generated $1 million in cash last year. If it wasn't for the loss of these contracts, the company could easily have become a ten-bagger from the recent lows.

At least we got out with our skins intact!

jeff said...

yeah, sometimes I wonder if you and I are the only 2 sane ones out there. ;)

Music Fan Festival said...

I knew signature back in the days when Bernie and his wife Julie were running the company and here I was about to approach them with potential brand that I have aqquired and is huge in Asia and Europe so much so i can't keep up with the orders having them loose these contracts makes me wonder what the heck is Michael Prince doingand their marketing team you gotta wonder.

Anonymous said...

Hey all:

I (and my family) are shareholders in SEYE.

I too, have experienced problems communicating with management. They will not return my calls.

The Hummer contract loss is a non-event in my opinion. GM is shutting this division down. It also accounted for a very small percentage of SEYE sales.

The BEBE contract is a huge problem. They will be playing a game of can we cut expenses as fast as revenue declines. I am going to guess that they won't.

SEYE did make money this past quarter.

They have paid down debt significantly.

They have also signed some deals with HMX group. These should be good contracts, but I doubt if they can make up for the BEBE loss.

I am losing on my SEYE position, but only by a small amount.

The company definitely has problems, but I would not count them out.

If they can cut expenses, liquidate BEBE & Hummer inventory, AND get some new contracts, SEYE could still be a decent investment.