Monday, September 19, 2011

Tandy Not So Dandy

Tandy Brands (TBAC) appears to trade firmly in value territory. While the company trades for just $11 million, Tandy has net current assets of almost $19 million. But it's very easy to see that management is not being candid with shareholders. As such, investors have no reason to believe that management will stop its destruction of shareholder value.

First, management only touts good news in its communications with shareholders. Even though recent results are poor and continue to deteriorate (based on year-over-year income and cash flow statement comparisons), you would think the company is doing quite well if you just listened to management's commentary.

The company is increasing floor space and market share with its customers, management argues. But it is defending share by thinning margins, which appears to be a losing proposition here (and in most cases).

In the company's outlook, management notes that order bookings for its gifts segment are up 30%. Unfortunately, this segment represents just 20% of the company's revenue. No mention is made of the bookings rate for the larger or other segments, which are likely on the decline. Clearly, shareholders should only be privy to the good news; the bad news should be kept under the rug, where it belongs.

Management has taken some heat for its lack of success. On the last conference call, an investor accused the CEO of incompetence and demanded his resignation. From now on, however, there will be no more conference calls! The company recently announced that the calls with investors would be discontinued so that the management team can be "focused on driving business results". I guess the 30 minutes per quarter spent on conference calls is what is causing the business to flounder.

Unfortunately, management candor is not the only problem with this company, as discussed here. Potential investors should be wary of this company despite the attractive price.

Disclosure: No position


Anonymous said...

It's a value trap. It has extravagant costs that would be easy to reduce but management chooses not to. It seems to have a passive shareholder base and hostile management. A few years ago a small investor tried to change some things but lost a proxy fight. These two posts on greenbackd provide more detail: (1) (2).

Anonymous said...

I really like when you publish articles on value traps like this. I feel I learn a lot more on value investing by seeing what the 'dark side' looks like.