Small Cap Value Report - Thu 7 Mar 2019 - QUIZ, AIEA

Thursday, Mar 07 2019 by

Guten Tag, it's Paul here, with the placeholder :-)

My daily excuse about not getting around to doing the RBG notes has to continue.

I was busy yesterday afternoon, preoccupied, raising awareness of ZANE, my favourite charity.  It's very vivid in my mind, having just spent some time in Zimbabwe.

All I can say is;

"These are the things, these are the things, the things that dreams are made of!" - everyone likes a bit of Human League. 

On to today's news...


Share price: 14.75p (down 54% today, at 11:44)
No. shares: 124.2m
Market cap: £18.3m

Trading update (profit warning)

QUIZ, the omni-channel fashion brand, announces an update on trading during the period between 1 January 2019 to 28 February 2019 ("the Period") and its expectations for the financial year ended 31 March 2019 ("FY 2019").

Yet another disappointing update from this online & physical clothing retailer. It's one of these shares that seems to be on permanent ratchet downwards, with each profit warning smashing up the share price further. There was a nice rebound here, for traders, when it last bottomed out at c.20p, then (temporarily) bouncing to a peak of about 36p. Here we are today at just under 15p, which would have been unthinkable not long ago. Is it value now? Probably yes, but I'll crunch the numbers first.

During the Period, the uncertain consumer spending backdrop has remained challenging for QUIZ. As a result, the Group has recorded a significant shortfall in sales compared to the Board's prior expectations. Furthermore, there has been a requirement to apply higher than anticipated discounts to clear excess stock.

This sounds like management are in denial. When sales fall significantly below forecast, and they have to discount to clear stock, it means they got the fashions wrong. Simple as that. The first step to fixing that problem, is to admit it, which QUIZ doesn't seem to have done.

Online sales are up 16.2% - not bad

Physical stores (and concessions, which are mainly in Debenhams stores) are down a thumping 11.1%. Combine that with lower gross margins (to clear dud stock), and the fixed cost base of physical stores, and this will have a painful geared impact on the bottom line.

Previous guidance was as follows;


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Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

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QUIZ plc is United Kingdom-based global women's wear brand company. The Company is focused on providing occasion wear and dressy casual wear primarily for 16 to 35 year olds and offers clothing, footwear and accessories. The Company’s occasion wear provides maxi and mini dresses, matching tops and bottoms, and footwear, bags and other accessories that are designed to complement a particular outfit. The Company’s dressy casual is designed to provide the latest on-trend clothes, shoes, bags and accessories that have a glamorous edge. In addition, the Company’s products includes denim, playsuits, shirts, tops and skirts. The Company also provides a range of outerwear such as faux fur jackets, parkas and biker jackets. Footwear offers dune River Island, missguided and ASOS. The Company’s brand operates in 19 countries through 65 international franchise stores, concessions and wholesale partners. more »

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Airea PLC is a United Kingdom-based specialist flooring company. The Company’s primary activities are focused on manufacturing, marketing and distribution of floor coverings, through its brand burmatex. Its burmatex brand is a designer and manufacturer of contract carpets and carpet tiles. It offers a product range spanning fiber bonded, structure bonded, loop pile, cut pile and textured loop pile carpet in sheet, tile and planks, as well as specialist barrier and entrance matting products. It also focuses on the designing and manufacturing of products to meet needs of architects, specifiers and contractors for the education, leisure, commercial, retail, residential, healthcare and public sectors. The Company also exports its products to Europe, the Middle East countries and to Asia-Pacific regions. more »

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63 Comments on this Article show/hide all

ttjs4 7th Mar 44 of 63

Mike Ashely think he can do it himself:

Sports Direct has today requisitioned a general meeting of Debenhams plc (Debenhams) to appoint Mr Mike Ashley to the board of directors of Debenhams and to remove all of the current members of the Debenhams board (other than Rachel Osborne who became a director in September 2018).

If Mr Ashley were to be appointed to the board of directors of Debenhams during this business critical period for Debenhams, Mr Ashley would carry out an executive role, and would focus on the Debenhams business, including building a strong board and management team. If appointed, Mr Ashley would step down from his current roles as a director and chief executive of Sports Direct. He would be replaced as acting chief executive by Chris Wootton, currently Sports Direct's deputy chief financial officer.

Sports Direct wishes to reassure its shareholders that, if Mr Ashley were to be appointed to the board of Debenhams and step down from his roles at Sports Direct, Sports Direct and Mr Ashley have every confidence that acting chief executive Mr Wootton and the other members of Sports Direct's board and management team have the necessary expertise to continue to successfully run the Sports Direct business.

A fuller statement in relation to Sports Direct's reasons for the requisitioning of a meeting of Debenhams and the proposed appointment of Mr Ashley will follow in due course.

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rmillaree 7th Mar 45 of 63

well if Ashley's plan succeeds all we need for a proper party is for Elon Musk to buy 25% of Debenhams and ask to be appointed to the board too - alongside Mike and Rachel. He may have some time free if the SEC ensure he loses his Tesla head Honcho job.

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rhomboid1 7th Mar 46 of 63

In reply to post #455758

Airea (LON:AIEA) inventories are stable at c 4mths of sales.. £6.7m inventories vs £19.3m sales...they supply a wide range of international markets with a wide variety of SKU’s so that seems a sensible level to me given the nature of the product, supply from stock model and the need to produce efficiently using batch production ?

Not sure where you got your 10mths from...maybe you were confused by the Ryalux inventory disposal?

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mojomogoz 7th Mar 47 of 63

In reply to post #455788

Are you paid IR yet? ;)

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sharmvr 7th Mar 48 of 63

In reply to post #455778

Been very tempted to bottom fish with QUIZ (LON:QUIZ) - 10m cash adjusted on 4m EBITDA - cheap to my incompetent eye.
One of the things putting me off (other than past experience) is Mike Ashley - opportunist or retail guru - personally I'd say both but am concerned about being on the other side of the table.
Namely quiz and his other retail interest become in effect a related party where marketing is sponsoring Newcastle and profit comes from treating staff like sh1t, which might work at sports direct, but perhaps less so at HOF when they're trying to sell a watch for 2k.

Probably will bottom fish - stubborn stupidity or a bold value investor, the time will tell!

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rhomboid1 7th Mar 49 of 63

In reply to post #455793

(-: not directly...but I do like to keep the world abreast of all that is best about those shares I hold..

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shipoffrogs 7th Mar 50 of 63

In reply to post #455788

Inventory should be valued at cost (or realisable value if lower), so equating inventory to sales is a bit "apple and pears". The Inventory note in their accounts stated that they charged £7.8m through the P&L last year for inventory sold - so I just divided the year end stock by that P&L run rate to get a little over 10 months.

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rhomboid1 7th Mar 51 of 63

In reply to post #455808

Not sure that makes any sense...inventory is valued at lower of cost or realisable value so that’s not an issue

Inventory is *always* compared to sales to establish whether it’s appropriate...what inventory they sold through last year is irrelevant to that...especially as it included Ryalux clearance

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shipoffrogs 7th Mar 52 of 63

In reply to post #455813

Looking at James Halstead (who looked to buy Airea last year) and therefore seems a good comparator - their 2017 year end inventory was £73m having expensed £136m through the year - so holding roughly six months. (Airea Inventory: £6.8m; expensed: £7.8m).

Airea have a much better margin but seem to be holding a worrying amount of stock.

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rhomboid1 7th Mar 53 of 63

In reply to post #455818

I’m sorry but you’re looking at a meaningless metric

Airea have 4 months of sales in inventory which looks fine given the business model

Inventory sell through is irrelevant to that ..

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shipoffrogs 7th Mar 54 of 63

In reply to post #455823

Rhomboid - Both methods can be used - mine is more accurate, particularly where goods are sold with a big mark up. Both are explained here:

I think it's a very meaningful metric here. But now I'll shut up about it.

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rhomboid1 7th Mar 55 of 63

In reply to post #455828

Yup that’s meaningful...but the formula from your link refers to sales ...whereas you didn’t!

If you use the formula from your link you come up with a satisfactory picture

If you assume y/e inventory is similar to average then Airea (LON:AIEA) has inventory turnover of 3 ...which equates to 4mths of sales...which is where I started!

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shipoffrogs 7th Mar 56 of 63

In reply to post #455833

No - it refers to cost of sales, describing it as a more accurate alternative calculation.

I'm not sure why the confusion arises - in 2018 Airea's sales were c£19m and the cost of the inventory sold was £7.8m.

Put another way the selling value of stock held should be about 6.8/7.8 x £19m = over £16m. On your methodology that equates to 4 months sales - £48m a year.

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Arturo82 7th Mar 57 of 63

In reply to post #455563

Why not give us a clue regarding which stock you are pontificating about at the start of your post???

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thirty fifty twenty 7th Mar 58 of 63

In reply to post #455828

obviously different people have different favourite ratios - each to their own ….

for my detailed analysis I use inventory compared to cost of sales.
for Airea (LON:AIEA)
Cost of Sales are MAXIMUM 16.5m
Inventory is 6.8m
These figures implies that stock is turned over every 4.9 months

I say MAXIMUM as within that 16.5m there are distribution and administration costs.
even if we assume these are as low as £1m that brings the stock turn to well over 5months.

given that this ratio is an average of the fast selling products and the slower selling products,
it is, IMHO, not unrealistic to assume that some stock lines are taking over a year to shift.
I believe that does indicate some risk of (some) obsolence in stock.

Airea (LON:AIEA) used to be in my top5 holdings but I had sold c.80% before today's results and the remaining shares this morning. My decision was not based on stock but more so a simple worry that despite the good profit last year and maybe the year ahead they have stated themselves that it is very competitive market and they need to continually come up with new products.

This I think merits that a lower rating and I felt the current price was up with events.

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rhomboid1 8th Mar 59 of 63

In reply to post #455848

Hi thirty Fifty Twenty & Ship of Fools

Thanks for the detailed comments

Ship of Fools I mistook the point you were trying to make for which I apologise

There is a Q over inventory management but I’m not sure there’s enough detail provided in the accounts to draw any meaningful conclusions because we do not know the impact of the stock hold requirements of the new ranges launched over the last year or so...there was certainly a significant build to support them & thus there’s always the possibility within the stock there might be some slower selling lines.

With that said given the opportunity the new CFO had to clean house if required with all the other Ryalux required adjustments going on I’m sure he’d have kicked every line of stock valuation he could as hard as he could!

Re competitive backdrop...the rise in margins suggests that is an ongoing feature of its markets that Burmatex has latterly learnt how to navigate rather better

Anyway many thanks for an interesting discussion

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paraic84 10th Mar 60 of 63

Some further pointers on QUIZ (LON:QUIZ) to be aware of:
- I reckon it's got one more profit warning yet as there is a scheduled trading update on 11 April and I doubt they'll have fixed things by then.
- Although they could help margins by closing stores and concessions, they are still opening them. Despite the problems at Debenhams (LON:DEB) in their interims they said 'Since the period end [September-November 2018], QUIZ has opened a further store in Liverpool and nine new concessions with existing UK partners.' Debenhams (LON:DEB) is its only real partner now so we must assume the concessions are there.
- Why aren't directors buying shares?! Two non-exec directors only own 18,000 shares between them!

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Edward John Canham 10th Mar 61 of 63

In reply to post #456473


Another point to bear in mind, although not sure how important, is Peter Cowgill is also Chairman of JD Sports Fashion (LON:JD.) - don't think there is much love lost between him and Mike Ashley, so if the latter gets control of Debenhams (LON:DEB) ...........


No longer hold, but watching

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purpleski 12th Apr 62 of 63

In reply to post #455703

I know replying to oneself maybe the modern form of the first sign of madness but one month after writing:

“PS People who comment negatively here in a certain way, better be careful what they wish for. They may login one day and fine [sic] there is not a report to comment on - permanently”

and for nos-subscribers that came true.

If only I had that forsight in my stock investing though I did manage to sell Plus500 (LON:PLUS) back in mid-Feb for 1148p before it became a complete car crash.

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PJ0077 12th Apr 63 of 63

In reply to post #468591

So purpelski, you've

(a) replied to yourself, &

(b) patted yourself on the back not once, but twice


Non-subscribers will miss posts like this!

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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