K Swiss Inc (KSWS)

[Zen]

11-27-2005 8:17 pm from Rick.Konrad@....com

I will BUY KSWS at $31.57 because (1) It is trading at a 9.1% free cash
flow yield based on TTM FCF (2) The company has a long history of
returning capital to shareholders through share buybacks, since 2000
over $90 million of stock has been repurchased and (3)the return on
invested capital has averaged 35% for the last five years.

[Kevin Shang]

Interesting idea. Let me throw out two questions to generate more
insights:

1. Have you compared KSWS to TBL? Both are in footware and both have
high return on capital and no debt. Valuation is similar.

2. What's KSWS' competitive postion within a consolidation industry
with Nike and Reboek/Adidas?

Look forward to your thoughts.

[Shai Dardashti]

Anyone look into Puma? 
 

Hard to find financial data...  but from some stuff I found a while ago (if I remember correctly) their margins were even more impressive...

 

- Shai

 

--
Editor, Shai Dardashti on Grahamian Value
www.ShaiDardashti.com

[Shai Dardashti]

One difference between KSWS and TBL:

• KSWS has solid management that really are owners as well. 
• Lots of insider ownership, founders (brothers, if I remember right... it's been a while since I looked at KSWS) with a clear passion and interest in the business, etc.  
• I doubt TBL has like leadership characteristics.

- Shai

[Rickvalue]

Thank you for your thoughts. Timberland has a long history of strong
cash flow generation.FCF generation has exceeded $600 million for the
last five years. Share buybacks have also been prominent with $530
million of stock retired in the 2000-2004 period.

However, I do not wish to be lulled into the same mistake that I had
made with shoe companies in the past. Recall that RBK under CFO Paul
Duncan became noteworthy for its stong financial characteristics. The
company divested all of its "de-worsification" such as Boston Whaler
and focused on aggressive share buyback. In the interim, they lost
sight of their operations...i.e.making an attractive shoe! Nike managed
to do both. RBK's CEO Paul Fireman delivered diatribes about
authenticity while he went through a long string of operating
management and design teams. Ultimately, he gave up with the sale to
Adidas.

Timberland's strategy appears to be a little different. While still a
high peformer in ROIC, generating astaggering 50+ percent return on
invested capital, its growth plans are restrained and somewhat obscure
at least in my eyes.

Investment spending has outpaced revenue growth by a factor of two for
the last two years and there appears to be little to show for it. The
company has limited distribution in order to protect price points and
saturation.

In my opinion, TBL could easily privatize itself and utilize its cash
flow to service an LBO. The large cash balances and continuing cash
flow generation are being used to make acquisitions like the Smartwool
acquisition.

KSWS in my view has somewhat better growth characteristics. Their
market position in sneakers is still quite small at 3%, and growing.
They remain a gnat on the backside of the industry giants and seem to
attract very little competitive retalitation.I do agree that there is a
passionate leadership in place for KSWS but I suspect the same is true
for TBL.

It just seems that the lollapalooza effect that Munger strives for is
more prevalent in KSWS than TBL.

As to Puma, this is a German company Puma AG Rudolf Dassler Sport. CFFO
has been less than net income since 2000, so I believe that earnings
may be overstated relative to its counterparts.ROIC has been about 33%,
so again as Buffett has said, there's no business like shoe business.
Revenue growth in the last twelve months has been about 15% with EPS
growth of about 19%.This compares favorably with TBL's 6% revenue and
15% revenue growth and KSWS' 6% revenue growth. However, KSWS eps
growth on a TTM basis has been 30%

I appreciate your comments on the relative merits of each of these
businesses.

Thnx

Rick

[Sam]

Hi everybody, this is the first time I wrote here, please bear with me.
I've tried to discounted the FCF of KSWS. Here's my calculation:

FCF 2004: 81mil
Growth 2005 to 2009: 10%
Growth 2010 to 2014: 5%
Perpetuity Growth: 3%
Discounted Rate: 10%
Outstanding Share: 34 mil

The per-share intrinsic value equals: $42. That gives a 22% margin of
safety for the price of $33 as of 19 Dec 2005.

I find 22% is still far from Buffet's 40% hurdle. But the growth rate I
set was very conservative.

Also, I noticed that, apart from the impressive record of ROE, margins,
growth, the days sales outstanding, and receivable turnover are also
turning better and better.

All and all, I find I can't resist to buy some KSWS and I think I'll do
that tomorrow.
Could anybody correct me before It's too late!!!??

Thanks a lot

Sam from Hong Kong

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