Description

RG Barry


Many ways to skin a cat. We prefer the slow way, and our selected stocks over past several years reflect that. Names that we have recommended in this forum as Smithway Transport, Celadon, Obie, Ezcorp among others all took their time but rewarded with doubles, triples etc. We feel our current story fits into this mold- thus for the fellas who
want gratification in a month, this is a pass.


RGBC is one of the oldest slipper-shoe manufactures in the US and the largest in the slipper industry with about 40% market share of US sales. They sell to a veritable whose who of American retailing including WalMart, JC Penney, Federated, Macys among many others and at various price points. Some of their better known products include the Dearfoams line of slippers and EZfeet in WalMart.


But the China wave done them dirty and almost did them in. Late to realize that we couldn’t compete in this global world with domestic production, Barry was hit hard.


Finally, in early 2004, the company brought in a turnaround expert to right its’ ship. With little hesitation, the new CEO Thomas Von Lehman went to work. Discovering a large array of sku’s and many small but high maintainance customers, he reduced the number of shoe styles from about 570 to 170 and the number of customers from approximately 800 to 30!


And all production was moved to China allowing a reduction from almost 2000 employees to 200! It now estimated that 13 customers account for 70% of revenues and 80% of the profits. All rather dramatic changes for a sleepy old company.


Finances in jeopardy in late 2003 causing some customer cutbacks, has now been cleaned up with secured financing for next two years. Barry should now be leaner, faster more efficient and profitable. One of their newer products is called Terrasoles- a slipper than can be worn both indoors as well as outdoors- has the potential to be
a big hit.


Management feels that it has corrected past issues even earlier than expected and now it is a matter of selling. A recent corporate communiqué said- “Although we anticipate some additional restructuring charges in fourth quarter, the closure of these
facilities substantially completes our current strategy to reduce overall operating costs”.


Von Lehman further commented that “….and our experience thus far with total outsourcing has been better than expected from the standpoints of pricing, quality and delivery”. SGA and inventory has been reduced nicely which should allow for a return to normal profitability.


Dearforms has brand power. Barry estimates that over 75% of an estimated 62 million consumers has brand awareness, a figure approaching 90% among upper tier shoppers. And all this with little advertising and marketing!


In 2005, the first half while usually unprofitable, should continue to show improvement and the second half should put 2005 nicely in the black. Obviously the big question is the earning power of the company. Due to past problems , the company has a $30 million NOL which should help shield earnings. Our best guess for the 2005 year is revs of $110 million compared to $104 million with $0.40 eps fully taxed compared to a
loss of $2.02 in 2004. Sales were down last year due to past financial constraints (since corrected), elimination of smaller accounts accompanied by a much more restrictive product return policy. Management has indicated it will only sell to buyers where an adequate profit is expected.


The balance sheet as of Dec 2004, showed current assets of $33.0 million with $18.2 million of current liabilities. Long term debt was less than $1 million. Shares outstanding were 9.8 million.

Catalyst

turnaround expert entered last year and doing his thing.