moneymcbags (< 20)

Small Company Update: You Down with DFZ?

September 10, 2010 – Comments (0) | RELATED TICKERS: DFZ

DFZ recently announced their fiscal Q4 and Money McBags wanted to break it down in more detail as it's an interesting, underfollowed little company that put up their first bad Q in a while (and Money McBags was an owner until he sold after the "flash crash" as he wanted out of illiquid names more than Lenny Bruce wanted out of the Navy).  Money McBags broke them down two quarters ago with the basic story being they are the market leader in the slipper market (and I know what you are all thinking, slipper?  I hardly even know her) with ~35% market share, they own WMT's slipper business which makes up ~35% of DFZ's business, they sell an inexpensive f*cking product which should continue to do well with consumer spending becoming tighter than Joan Rivers' sphincter, and they are f*cking cheap.

It is a weird company in some ways though because 70% of their business occurs in the last half of the calendar year which generally makes them unprofitable in the first half (though they were surprisingly profitable last Q).  To remedy the seasonality, they intend to buy a company with strong summer sales such as a flip flop company (perhaps run by the flip flop king Mitt Romney who never saw an abortion he didn't like, or did like, or didn't like, or whatever the f*ck his magic underwear told him to say) within the next 180 days using the $45MM in cash on their balance sheet.

That said, the company traded off by ~12% after earnings thanks to a more disappointing quarter than the remade Oregon state quarter because really, the Beaver state should have something much more appealing.  So Money McBags will break down the good and the bad below:

The Good:

1.  A very nice fiscal year.  For the year, revenue was up 9%, net income was up 34%, and gross margin was up to 41.5% from 38%.  In other words, they sold the f*ck out of some sh*t and sold it with a lower COGS which is a huge win in this sh*tconomy™.  That said operating costs were up slightly as they try to build a brand, but it was marginal and guidance is for those costs to moderate going forward.

2.  They have a ton of cash, $45MM to be exact, which is enough cash to take all of the writers of the award winning When Genius Prevailed (which would be yours truly) to a night at Rick's Cabaret with full champagne room privileges and and still have at least $42MM left over, or they could just buy a few copies of the Birds of America, whichever.  Aside from using it for acquisitions, DFZ is going to put their cash to use by increasing their quarterly dividend from $.05 to $.07 so the stock currently has a ~2.8% yield.

3.  On the call, they said that in this current Q they are seeing "substantial increases" over Q1 last year in terms of sales (and hopefully as substantial as the increase in an 18 year old virgin's pants when he sees the lovely Brooklyn Decker or Teddy Roosevelt's Q score after the Battle of San Juan Hill).  Now if Money McBags heard right, some of those sales could have been pulled forward from their expected Q2 sales, but whatever, sales going up are better than sales going down, unless sales are Marissa Miller and you are on what she is going down.

4.  They continue to try to build a brand for Dearfoams with sh*t such as this facebook page (and Money McBags would friend them but the name nazis at Facebook still won't give him a page) and licensing the brand name to Olivet (which sounds like the veteran of a fictional pimento war) for them to put the brand on clothes, hats, and perhaps even willy warmers.  Money McBags places about zero value on this licensing deal because it is doubtful Dearfoams as a brand will ever resonate with anyone, but Money McBags gives them credit for trying and for selling that risk.