Great pitch, especially working to talk directly with the company to understand certain key drivers and absolutely deserving of the win.
Given DTG2Go is currently at breakeven despite management claims since the acquisition that it would be a high margin addon, can the statements of forward margins on the business be trusted?
Your model assumes fiscal 2022 and 2023 will have operating margins of 8%+. TTM operating margins are currently at 7.5%, are you expecting a large upside surprise in Q4 from the Fanatics business?
Also on margins, inventory is up over $10 per share in the past year and well past historical levels, will the likelihood of discounting depress margins? I would assume one of the reasons the stock has sold off so much is because forward earnings are likely lower than trailing, when combined with the increasing debt the stock isn't as inexpensive as it initially appears. Thanks!
Great points. Debt and continued profitability are my biggest concerns too. We've got a small cap value consumer discretionary stock with a fair amount of debt that is entering a macro recession. Both could be true: a) it's materially undervalued relative to sector averages and its likely long-term trajectory, and b) it will likely trade lower in the current risk-off environment before bottoming, perhaps in 2023.
Imo if the company was in more of a "niche" it being small-cap could allow it to ignore the macro more, but the industry it's in has a lot of competition.
If I were to give an assumption based on retail inventory builds they probably ended September with net debt near $140M and EBITDA is likely dropping down to below $50M, puts net leverage near 3x. So to your point B: I'd assume worst margins are in 2023 before rebounding but that the leverage overhang may limit returns for equity holders.
Opportunity cost of being wrong with a pick seems high these days too, since so many high quality behemoths are on sale! Obvious stuff like MSFT, GOOG, NVDA, AMD - all have pretty great risk-rewards from here over a few year timeframe, IMO.
Anecdotally, even where I live in Colorado (which is pretty far from Salt Life's salt water), there are signs of brand loyalty in the form of occasional bumper sticker. So maybe some loyalists can help carry through potential rough times.
Great pitch, especially working to talk directly with the company to understand certain key drivers and absolutely deserving of the win.
Given DTG2Go is currently at breakeven despite management claims since the acquisition that it would be a high margin addon, can the statements of forward margins on the business be trusted?
Your model assumes fiscal 2022 and 2023 will have operating margins of 8%+. TTM operating margins are currently at 7.5%, are you expecting a large upside surprise in Q4 from the Fanatics business?
Also on margins, inventory is up over $10 per share in the past year and well past historical levels, will the likelihood of discounting depress margins? I would assume one of the reasons the stock has sold off so much is because forward earnings are likely lower than trailing, when combined with the increasing debt the stock isn't as inexpensive as it initially appears. Thanks!
Great points. Debt and continued profitability are my biggest concerns too. We've got a small cap value consumer discretionary stock with a fair amount of debt that is entering a macro recession. Both could be true: a) it's materially undervalued relative to sector averages and its likely long-term trajectory, and b) it will likely trade lower in the current risk-off environment before bottoming, perhaps in 2023.
Imo if the company was in more of a "niche" it being small-cap could allow it to ignore the macro more, but the industry it's in has a lot of competition.
If I were to give an assumption based on retail inventory builds they probably ended September with net debt near $140M and EBITDA is likely dropping down to below $50M, puts net leverage near 3x. So to your point B: I'd assume worst margins are in 2023 before rebounding but that the leverage overhang may limit returns for equity holders.
Opportunity cost of being wrong with a pick seems high these days too, since so many high quality behemoths are on sale! Obvious stuff like MSFT, GOOG, NVDA, AMD - all have pretty great risk-rewards from here over a few year timeframe, IMO.
Anecdotally, even where I live in Colorado (which is pretty far from Salt Life's salt water), there are signs of brand loyalty in the form of occasional bumper sticker. So maybe some loyalists can help carry through potential rough times.