MJKpayday (99.64)

dELiA*s, Is it a bargain?

November 06, 2008 – Comments (0) | RELATED TICKERS: DLIA , FFH , BRK

Delia (I gave up on getting the caps right) consisted of three business: CCS, Alloys, and Delia's.  As of today it consists of an additional 102M in cash(pre tax) and two businesses Alloys and Delias.   

They've got the following going for it:

- Just received 1.3 times it's market cap in cash for selling 1 of it's 3 businesses. 

- It trades for a small fraction of it's book value

- It has recevied a glowing recommendation from all star investor Whitney Tilson who owns 7.9% (http://seekingalpha.com/article/98267-three-stocks-we-re-long-with-high-conviction) 

 But, is it a deal?  Is it right for me?  There is no clear indication of how big the direct/catalog/internet business is for dELiA*s, Alloys, or CCS, but they do offer a hint. Catalogs sent out total 21M, 29M, and 18M respectively.  It's the only indication I could find so as a VERY rough idea I'll split the finaicial metrics that deal with direct/catalog/internet busienss in thirds.  The agreement with FL (Foot Locker) on asset and liabilities is not entirely clear to me.  (Bare in mind this could be very wrong, I'm making somewhat educated guesses to forecast  what the remaining company MAY look like)

They'll have 110M in cash on the balance sheet.
Subtracting the following:

12M in debt

24M in accounts payable (I read the asset purchase agreement 10x and was not clear if FL is taking on CCS AP, but for now I will assume not)

32M In accrued expenses (same here)

10M Short term debt

20M? Taxes (I do not know what the tax rate will be) 
12M is left.

The market CAP right now is 61M.  
So for 61M you get

-12M in cash

- 34M Inventory.  The inventory on the books is 46M, so I assumed dELiA retail inventory is 45 days of sales or 11M and then spit the remaining inventory into thirds and backed out CCS (just a guess) (46M-11M=35M, 35M/3=12M in CCS inventory)

- 5M in prepaid expenses (agreement says DLIA get to keep all of it)

- 0M Other current assets (in the latest 10Q their is 7M in "other current assets" but probably lacks a highly liquefiable value so I'll go with 0M.- 10M Property plant equipment (in the latest 10Q they have 77M, but most of it is store improvements while the remaining is a distribution center, warehouse, and maybe a building or some land.  I'm discounting heavily and doub that any of it is easily turned into cash.)

- 0M in goodwill and intangibles (they list 43M, but this is mostly from their legacy merger acquisitions)

Remaining businesses: dELIa*s retail sales= 90M in sales last year and they lost 10M.dELIa*s catalog/internet/direct = 50M in sales last year and they broke even. (DLIA did 150M in sales totoal and I'm spliting it in thirds, but it's probably less) ALLOY catalog/internet/direct = 50M in sales last year and they broke even  (DLIA did 150M in sales totoal and I'm spliting it in thirds,  Alloys could be more) 

I want it to be great bargain, but I have serious concerns about the two remaining business draining the coffers.   They have managment with big name experience, but are a bit untested with Delia. I'm going to ahve to hold on til I see the next quarterly report and conference call.  For now there is just too much uncertainty on how the books look and how the two remaining businesses will perform. 

MJK