Description

Saucony makes athletic shoes and apparel under the Saucony, Hind, Hyde and Spot-Built brand names.

Positives
1. Valuation: The only current reason for making an investment in SCNYB is valuation. It currently trades at half of its Net Net Working Capital (NNWC). Current mkt cap is $27.3 million, based on 6.08m shares outstanding. Current assets as of October 5th are $69.7m, Current Liabilities are $10.4m and Total long term obligations are $2.2m, giving NNWC of $57m. Included in this is Net Cash of 14.6m.
2. Saucony is a highly regarded brand among runners, this brand accounted for approx. 80% of sales.
3. The company has finally decided to move its remaining US manufacturing activities to SE Asia, taking a 1.1m charge in the 4th quarter.
4. International sales and the introduction of new technology (Customising shoes to the characteristics of the runner, including height, weight, foot size, and gait cycle) seem to be going well according to management.

Negatives
1. Saucony was very successful in riding the “bowling shoe fad”, it resurrected a line of shoes it introduced in the early 80’s. It was there first real go at the fashion market, which worked well but they are now suffering the hangover.
2. They can never compete with the Nikes of the world they will always be a niche brand.
3. As sales ramp up again, they will have to invest in Working Capital, reducing the net cash position. (Glass half empty argument).
4. Two classes of shares, controlled and run by management, a takeover by a third party unlikely. Management (i.e. Family) takeout is possible.
5. Micro cap, has no coverage, and is not likely to get any.

Catalyst

This is a pure value play, I see no current catalysts.