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buffalonate (95.01)

2 Interesting Turnaround Plays

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April 24, 2011 – Comments (0) | RELATED TICKERS: WOLF.DL , LCAV

I have followed these companies for years and believe they will return to profitability.  The first one is Great Wolf Resorts(WOLF).  This is a chain of waterpark resorts that hasn't been profitable for a couple of years.  This company started off building smaller resorts and waterparks and have learned that this model isn't built for success.  They have since built a 2nd generation of larger waterpark resorts closer to population centers that are successful.  The problem is that they are the owner operator of 2 smaller resorts that will probably never be profitable.  These 2 locations drag down their results.  They have been subsidizing their mortgage payments for these locations with profits from other locations.  They are currently in talks with their bank to try to get the terms of the loan changed so these locations can be profitable.  The CEO has stated that if she cannot get the terms changed for these locations she will let the locations be foreclosed.  This is a win win for the company.  If they get better terms they are profitable.  If they let these locations be foreclosed these 2 dogs are off the books and they are profitable.  Great Wolf just sold off an underperforming location in Wisconsin that should help their profitability.  Great Wolf just signed plans to build a large waterpark near Albany, New York.  They will just be operating this resort so if it becomes unprofitable they can walk away.  They are also in the planning stages to build new resorts in Pittsburgh and near Disneyland.  The fact that they are planning expansion tells me they believe they will be profitable going forward.  Here is a report showing that their revenues have increased 14% year over year.  http://www.bizjournals.com/milwaukee/news/2011/02/23/great-wolf-lodging-stats-show.html?ana=yfcpc 

The 2nd turnaround play is LCA-Vision Inc(LCAV).  This company provides fixed site laser vision correction services under the Lasik Plus brand.  Since the economy turned south this company has been losing lots of money.  They closed 8 of their worst performing sites and now have 54 sites around the country.  Their latest quarter their same store comps improved 8% which shows the company is increasingly viable.  http://www.bizjournals.com/cincinnati/news/2011/04/04/lca-vision-sees-slight-drop-in-1q.html?ana=yfcpc  The CEO says the company has lots of cash and can survive several years without being profitable.  They fired executives and had the remaining executives take on more responsibilities in order to reduce overhead.   

I believe both of these companies will become profitable in the next couple of years.  Both of these companies have highly discretionary products so I would not own these stocks for more than a few years because you don't want to own these stocks in a downturn. 

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