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Blair Corporation (BL)

Blair Corporation (BL). Wednesday October 4, 2006. Blair Corporation. Index: AMEX Sector: Services Industry: Catalog and Mail Order Consumer Products Employees: 1,900 Senior Management: 10 members Board of Directors: 9 members. Company Overview. Product categories Womenswear

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Blair Corporation (BL)

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  1. Blair Corporation (BL) Wednesday October 4, 2006

  2. Blair Corporation • Index: AMEX • Sector: Services • Industry: Catalog and Mail Order Consumer Products • Employees: 1,900 • Senior Management: 10 members • Board of Directors: 9 members

  3. Company Overview • Product categories • Womenswear • Coordinates, dresses, tops, pants, skirts, lingerie, sportswear, suits, jackets, outerwear and shoes • Menswear • Suits, shirts, outerwear, active wear, slacks, shoes, and accessories • Home merchandise • Bedspread ensembles, draperies, furniture covers, area rugs, bath accessories, kitchenware, gifts, collectibles and personal care items

  4. Company Overview • Markets/Sells product(s) • Direct mail • 81% of total sales • E-Commerce: launched in 2000 • 18% of total sales • Three Retail Stores • 1% of total sales • Two in Pennsylvania • One in Delaware

  5. Company Overview • Targets customers in low to moderate income range • $40,000-$75,000 annual income • Offers exclusive Blair credit card • Suppliers outside United States account for roughly 32% of company’s merchandise (expanding) • Properties consist of HQ, 2 distribution centers, 4 warehouses – all located in PA. 4 'call centers'.

  6. Company Overview Note: Product Mix largely unchanged over past 5 years

  7. Major Risks to Business • Significant increases in the costs associated with its direct mail business could negatively affect results of operations • Consumer concerns about purchasing items via the Internet as well as external or internal infrastructure system failures could negatively impact e-commerce sales and costs • The Company’s increasing reliance on direct sourcing from foreign vendors may negatively impact the cost to source and deliver merchandise • New management of Blair credit operations may impose more strict credit guidelines, which may have a negative impact on sales.

  8. Competitors • Competition consists of discount retailers and other retail catalog businesses • Major competitive advantage: Discounted prices, and competitive credit program.

  9. Senior Management • John E. Zawacki, President and CEO • 1971 graduate of Thiel College, Greenville, PA • Began employment with Blair Corporation in 1972: • Assistant Vice President of Womenswear 1977-1988 • Vice President of Womenswear 1988-1999 • President and CEO 1999-Present

  10. Senior Management (cont.) • Larry J. Pitorak, of Tatum Partners, interim Chief Financial Officer (CFO) • 1969 graduate of Thiel College, Greenville, PA • 1974 graduate of Cleveland State University Marshall • College of Law • CPA; Tatum Partner since 2002 • Previous employment: • 28 years with The Sherwin-Williams Company, Cleveland, Ohio includes: • Chief Financial Officer, Senior Vice President-Finance and Treasurer 1991-2001

  11. Senior Management (cont.) • David N. Elliott, Senior Vice President, Merchandising and Design • 1976 graduate of the University of Toronto • 1978 graduate of Harvard Graduate School of Business (MBA) • Began employment with Blair Corporation in 2004 • Previous employment: • 9 years with Petals, In., Tarrytown, NY: • Executive Vice President, Merchandising and Product Development 1994-2003 • Ross Simons, Cranston, RI: • Vice President and General Merchandising Manager 2003-2004

  12. High Level Financial Information • Stock Price: $25.80 • P/E: 5.72 • EPS: 4.51 • Current Ratio: 2.25 • Quick Ratio: 0.89 • ROE: 6.0% • ROA: 4.8% • Total Liabilities as % of Equity: 52.8% • 2005 Year End Data • Net Sales: $456 mln • Net Income: $31.5 mln

  13. Investment PROS • Strong Liquidity Position • 5 yr avg Quick Ratio of 2.19 • 2005 Quick ratio is 0.88 – add $75mln available credit for ratio of 2.07 • Very Little Debt • Virtually no Long Term (LT) Debt • 2005 Debt/Equity (DE) is 53% -- historically below 35%

  14. Investment PROS • Low capital investment requirements • Growth of international sourcing may further reduce future costs • “Focusing on Core Business” • Shed Alleghney Wholesale business / Crossing Pointe • Sold receivables for $28mln gain • Simple/Predictable business

  15. Investment CONS • Loss of $30 mln per year revenue stream from credit programs (valuation effect) • Increasing costs • advertising/paper/ink • Sales declined at 5 yr CAGR of 5% • $61.4 mln in returns in 2005 • 14% of net sales

  16. Investment CONS • Blair rejected $297mln ($36/share) offer to buy the business. • Instead bought back over 50% of shares outstanding for $42/share – shares subsequently lost half their value • Investor group entered “standstill” agreement

  17. Investment CONS Valuation

  18. Major Risks to Valuation • Sales Growth • Benefits from advertising • Negative effect of new credit program • Cost Margins • Cost of paper/ink • Effectiveness of advertising • Cost benefits from sale of receivables

  19. Conclusion • An investment in Blair Corp is not attractive at the current market price.

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