tag:blogger.com,1999:blog-7294165939647321702.post2582019442402684142..comments2024-03-28T13:45:43.362-04:00Comments on <center><a href="http://www.barelkarsan.com">Barel Karsan - Value Investing</a></center>: Kirkland's: The Falling Knife Turns UpwardSaj Karsanhttp://www.blogger.com/profile/04493152766022812984noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7294165939647321702.post-33548771386098092142011-02-24T21:12:37.572-05:002011-02-24T21:12:37.572-05:00Hi Paul D,
I like your arguments and I tend to ag...Hi Paul D,<br /><br />I like your arguments and I tend to agree in principal with what you're saying. However, for me there are two differences between Kirkland's and Lexmark which make the situations different.<br /><br />First, I think the risks in technology (obsolescence, patents etc.) are greater than in retail, where I feel copying the competition is easier. Unless you're overleveraged, you won't be made obsolete, you just need time to copy the competition. I could be wrong about this, but it's my view.<br /><br />Second, there was a large valuation difference (on a multiple basis, of maybe 30%) between the two companies (at the time of write-up). Obviously, there is some price at which I'd be interested in Lexmark. If Lexmark fell further, to say a P/E of 5 (which is where KIRK was ex-cash) or lower, then it becomes more compelling.<br /><br />Hope that helps to give you the reasons for the differences in my tones in the two articles.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-22326171933129671512011-02-24T11:25:04.576-05:002011-02-24T11:25:04.576-05:00Hi Raj,
Longtime reader here...
Your Lexmark po...Hi Raj, <br /><br />Longtime reader here...<br /><br />Your Lexmark posting made me think back to this Kirkland one. Much like Lexmark has to be seriously innovative to keep pace with a competitive industry (leading to a high potential for hit-or-miss earnings years), Kirkland is the same way with its merchandise selection and -- ultimately -- gross margins. <br /><br />Their sales rely on having sufficiently fashionable products at value prices. They import, so lead times for buying to shelving a product can be months, requiring some pretty good insights (lucky guesses?) from their buying teams. If they get it right, you see a year like FY 2010. If they get it wrong...2007-8.<br /><br />While it was good to get them when they were low, the outcome was anything but certain. Management claims a turnaround was completed, and while I agree that Kirkland has done a fine job reducing expenses (especially occupancy costs) over the past 2-3 years, its ability to consistently procure merchandise that will move (without discounting) is highly questionable. Thus, the large fluctuation in gross margins over the years. <br /><br />This could be an excellent company if they were great merchants (a la early Wal-Mart days or early Home Depot days...the REAL go-getters that created true "merchant cultures"), but I suspect they're more hit or miss. They will have a good year or two, but then they'll buy stuff that the customers just don't like for another year or two. <br /><br />And the fortunes of investors will rise or fall with savvy merchandise decisions. If you bought at $10 and the company was still in a "down" merchandise cycle, you could have easily seen your investment drop pretty far.<br /><br />And for the most recent quarter, with nearly 10% comp store drops, I think you'll find another miss on the merchandising front. It could be the start of another cycle that sees Kirkland's stock get hurt badly and its cash pile dwindle.<br /><br />Much like you wouldn't bet on Lexmark being a consistent innovator, able to stay ahead of a hungry pack of print competitors...I wouldn't bet on Kirkland's merchandising abilities to keep it very far in front of customers' quickly closing wallets.<br /><br />Though in this investing business, you can always get lucky. <br /><br />I love your posts! Keep up the great thinking!Paul Dnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-27275012559160699152011-02-23T16:10:13.551-05:002011-02-23T16:10:13.551-05:00Hi E,
I don't think a study done today would ...Hi E,<br /><br />I don't think a study done today would survive any scrutiny if it did not account for survivorship bias, as that was advanced as a criticism for this type of study at least a couple of decades ago.<br /><br />Hi Rayhan,<br /><br />Thanks for checking in! I'm not sure why the post did not publish as it should have! I'll have to monitor that in the coming days.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-52602566194898894862011-02-23T11:10:44.754-05:002011-02-23T11:10:44.754-05:00hey saj ,
4give me but u alive?
24 hours and no bl...hey saj ,<br />4give me but u alive?<br />24 hours and no blog update!rayhannoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-42896808662796753652011-02-22T23:47:39.880-05:002011-02-22T23:47:39.880-05:00I always wondered about those statistics and studi...I always wondered about those statistics and studies that show underperformers subsequently outperform. Do those studies take into account survivorship bias? I know a lot of Net-Net studies are screened and show a false positive skew because they don't take into account those that were frauds or went out of business. Nice work on Kirkland's!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-8527516742472024512011-02-22T11:11:33.955-05:002011-02-22T11:11:33.955-05:00I, unfortunately, got in before the big drop. But ...I, unfortunately, got in before the big drop. But doubled up after the drop and still got a nice profit out of it.<br /><br />So, thanks for the tip and maybe this'll teach me to be more patient next time.Unknownhttps://www.blogger.com/profile/07074456012661366987noreply@blogger.com