"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...