K-Swiss, Inc. (NASDAQ:KSWS)

CAPS Rating: 1 out of 5

The Company designs, develops and markets an array of athletic footwear for sports use, fitness activities and casual wear under the K Swiss brand. Also designs and manufactures footwear under the Royal Elastics brand.

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Member Avatar TheRadical (< 20) Submitted: 6/10/2011 2:04:33 PM : Outperform Start Price: $9.47 KSWS Score: -112.87

not a wild company, but its pretty consistent. Once they bring back those sweet commericals and get some sponsors, people will be kissin the swiss.

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Member Avatar vrk100 (< 20) Submitted: 2/25/2011 3:40:31 PM : Underperform Start Price: $9.81 KSWS Score: +109.41

Overview
Historically K-Swiss operated a great niche business which was fueled by its “Classic” product, a popular all white shoe, which required very little innovation, promotion and working capital investment. With a change in trends and a consumer downturn, the old cash cow has fast declined and revenue is expected to decline another 5-10% this year down to ($225M off a peak of $500M). K-Swiss is attempting to replace that business with a brand overhaul and a foray into the highly competitive performance footwear segment, a foray I believe is likely to fail and significantly changes the cash flow dynamics of the business.

Investment Thesis:
-K-Swiss trades at a 1.4x 2010E Revenue multiple and is 4-5 years away from being cash flow positive

-KSWS will continue to show negative cash flow through 2013 even in the rosier high growth scenarios

-CEO and controlling shareholder Steve Nichols is (67 years old) is essentially betting the company on its new performance line and its ability to compete with behemoths like Nike and Adidas as well as well established performance brands like New Balance, Asics etc

-Even if this program is successful, the margins, on-going promotional expenses and working capital investment of these sales is far inferior to that of the historical Classics business
-To achieve expected growth KSWS will need to penetrate additional retailers including mass retailers which will demand lower prices and better terms – a fact I believe the street is underestimating

-Further to this "grasping at straws" strategy - KSWS acquired Form Athletics this past quarter which is tied to earn out payment. Form is focused on MMA gear and is meant to be part of a new KSWS "Orange County" division. While small, I think this move supports the short story here.

Catalysts:
-Continued cash burn (~$30M this year or ~$1/ a share)
-Company took no reserve against its deferred tax assets in Q2 citing history of prior operating earnings and expectations for 2011 and beyond – I believe the company will be forced to record a $15m allowance in Q3 or Q4 given the outlook for the business
-Lack of margin improvement / cash flow generation

View vs. Street:
-Street is assuming improved working capital metrics and margins, along with significant revenue growth, while the 15-25% top-line growth may occur over the next few years, I believe the street does not appreciate the decline in cash flow conversion given the source of the revenue growth
-Street is not focused on working capital but I believe this will be a major use of cash given the expected revenue growth and the number of new product launches
-Street has margins expanding to 45% (8 pts +) which made sense historically but would be in line/superior to the larger performance competitors
-Consensus estimates do not account for the $15m reserve against DTAs

Risks
-Incremental spending on promotions and advertising yield results in significant top-line outperformance
-Potential acquisition although unlikely at these valuations and ownership of the business

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Member Avatar bofors (< 20) Submitted: 10/7/2010 3:20:52 PM : Underperform Start Price: $12.63 KSWS Score: +142.66

This is a brief outline of how and why I selected KSWS to underperform:

(1) KSWS has maintained a ceiling in the $13 to $14 range since April and had a celling about $11 during 2009.

(2) KSWS has traded below $11 every month for almost the last two years expect September 2010, and it is likely shortable at $12.50 now.

(3) KSWS's revenues are down some 13% and future orders are down some 9% year over year for the last quarter.

(4) KSWS's lost some 50% more money year over year for the last quarter.

(5) KSWS's attempts to turn itself around with "K-Swiss Orange County" and the "Kenny Powers" TUBES™ campaign look pathetic and weak. Moreover, with the later, KSWS makes a mockery of itself.

(6) KSWS has already written off 2010 and hoping some results might materialize in 2011 or later.

(7) KSWS has always been a small, weak, trendy brand and it was forced into the mainstream without a solid base.

(8) KSWS's TUBES™ seem to lack any real novelty or appeal to the moronic youth market.

(9) One of three KSWS contract manufacturers ceased operations in April and KSWS has had to get temporary capacity elsewhere.

In short, KSWS is a joke and has no expectation of making money for about year or perhaps longer. Before it has another profitable episode, it is highly likely that KSWS will drop below $10.

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Member Avatar jerseytix (61.73) Submitted: 5/8/2009 8:03:58 AM : Underperform Start Price: $9.22 KSWS Score: +177.70

They're burning cash, and will continue to do so for 2009. Don't see any short-term reason for a turnaround.

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Member Avatar MViscio1 (99.62) Submitted: 10/24/2008 11:24:00 AM : Outperform Start Price: $12.26 KSWS Score: -204.66

beat up name good brands

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Member Avatar rivercitytrader (95.28) Submitted: 10/6/2008 5:33:39 PM : Outperform Start Price: $15.53 KSWS Score: -169.92

Over $8 a share in cash assets, solid fundamentals, experienced management, very undervalued (possible takeover target?)

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Member Avatar biffinnh (85.64) Submitted: 8/2/2008 5:05:29 PM : Outperform Start Price: $15.49 KSWS Score: -140.16

Cash available, let's see if they can turn things around.

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Member Avatar Ganapatyas (< 20) Submitted: 6/16/2008 6:47:20 PM : Outperform Start Price: $16.10 KSWS Score: -128.60

good company with a cold . . .

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Member Avatar pnichol (69.54) Submitted: 1/4/2008 12:51:09 PM : Outperform Start Price: $16.55 KSWS Score: -124.32

Well-managed company with a strong track record of delivering solid business results. They are investing for the future and working on some new designs that should get the business rolling again, hopefully in time for the rebound of the US economy over the next year or so.

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Member Avatar TheREALMikePrice (< 20) Submitted: 1/1/2008 1:19:56 PM : Outperform Start Price: $17.80 KSWS Score: -121.78

Hit a wall with domestic business but mangement is experienced with these recessions.

Still earned 15% ROC and have no debt.

$8 cash per share, EV only 7x FCF

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Member Avatar CTrading (< 20) Submitted: 8/16/2007 2:39:22 PM : Outperform Start Price: $22.43 KSWS Score: -136.22

MFI CAP 88 TOP 50 8/16/07

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Member Avatar MCKIrobert (28.69) Submitted: 7/23/2007 1:40:55 PM : Outperform Start Price: $27.08 KSWS Score: -124.78


Good shoes. Good company. I have seen this stock featured in several investment newsletters lately.

This one is a keeper for the long-term.

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Member Avatar alexs85 (45.03) Submitted: 6/7/2007 1:17:46 PM : Outperform Start Price: $27.44 KSWS Score: -129.50

http://shadunskymethod.blogspot.com/2007/05/k-swiss-more-downside-on-way-in-short.html

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Member Avatar foolsy790 (< 20) Submitted: 5/25/2007 11:44:51 AM : Outperform Start Price: $27.69 KSWS Score: -128.30

Take advantage the low price.

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Member Avatar Javo131154 (< 20) Submitted: 4/17/2007 3:50:57 AM : Outperform Start Price: $28.09 KSWS Score: -133.23

Good management and low PE.

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Member Avatar rvaughn666 (< 20) Submitted: 3/21/2007 6:20:00 PM : Outperform Start Price: $28.36 KSWS Score: -137.04

Consider this my anti-Nike pick

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Member Avatar NetscribeConsGds (98.62) Submitted: 2/9/2007 7:40:12 AM : Underperform Start Price: $33.23 KSWS Score: +138.42

K-Swiss engages in the design, development, and marketing of athletic footwear for sport, fitness activities, and casual wear in the United States and internationally. Offering its products under the brand names K-Swiss and Royal Elastics, the company markets its products directly, through independent sales representatives to specialty athletic footwear stores, pro shops, sporting good stores, and department stores, as well as through its website.

The athletic sport shoe market in the U.S. is worth $19 billion the world’s largest, forming about 47% of the global market. K-Swiss faces competition from players like Nike, Skechers USA and Stride Rite to name a few. As company primarily targets the age group of 14 and 24, innovating products is the key, since teens are more receptive to the changing environment. However, inadequate efforts in product development and marketing has led to over 2% decline in K-Swiss’s top line performance for nine months ended September 2006. The company derives about 67% of its revenues from its Classic Category, which has seen a significant volume declines owing to unanticipated cancellation of orders. Other categories like children and training have also shied away to deliver impressive growth.

Additionally, Foot Locker, one of the company’s major customers, seems to shift its business to other producers, as revenue contribution from Foot Locker has declined by about 6%. To add to the woes, company’s overall order book in the first and the second quarter of fiscal 2007 is heading south. Female customers are shifting their focus towards sandals and canvas, which is affecting company’s business, as their offerings in this line are meager.

On a positive side, company has made some interesting management changes by hiring people from Nike and Adidas to boost its international operations that have been doing well. However, domestic business that forms over 65% of the revenues has shown signs of slowing down and there are no strong initiatives to drive them forward. In the light of these facts, K-Swiss does not stimulate in the one-year time horizon.

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Member Avatar jtcairns (< 20) Submitted: 2/8/2007 3:53:57 PM : Outperform Start Price: $33.15 KSWS Score: -138.67

Good Management and Good Products for a well-identified market niche. Should have bought at 30.00

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Member Avatar hlacheen (99.33) Submitted: 1/24/2007 2:21:59 PM : Outperform Start Price: $30.59 KSWS Score: -138.81

They will never be as profitable as a Nike since they don't employ child labor, etc... but they are still a fundamentally strong company with brand recognition. I also love their shoes =)

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Member Avatar etstockideas (33.82) Submitted: 1/22/2007 11:38:46 AM : Outperform Start Price: $30.08 KSWS Score: -140.01

I have just completed my first round of due diligence and very stong free cash flow yield... Check out my value scorecard at:
http://etstockideas.blogspot.com/2007/01/stockpickr-spotlight-portfolio-review.html

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