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January 27 RedEnvelope RuminationsRedEnvelope's (NASDAQ: REDE) a company I've been following for a year and a half now. They just reported a major shortfall in both their FY 3Q06 topline and bottomline and the departure of their CEO and an Executive VP. How disappointing and reminiscient of some past quarters.
Surprisingly, though, the stock has only dropped 10% - I had expected a much worse self-off considering the continued management churn, potential proxy battles with major shareholder Scott Galloway and company, a topline forecast that implies a double-digit year-over-year drop in 4Q06 revenue (which would be the first such drop in the Envelope's public life), and the departure of a merchandising-centric VP for a company that sources everything itself and where merchandising is most of the business.
I'm a little bit confused at this, but will admit that the company is still far from extinction. At current valuations, it can easily get acquired by a number of parties (including Galloway's). Moreover, it has 10M in case and negligible debt so it can keep trucking until it gets its wind back.
So, in the meantime, I'll be watching closely at who the board replaces those exiting execs with. The board already noted in the quarterly call that they're looking for someone who can lead top-line growth, which I can't argue with. However, I'm wishing for a little more: someone who can manage the Envelope's merchandising well enough to bring stability to a very seasonal and trend-driven retail business. Housing MarketThree months in a row of declining existing home sales and positive indicators across other economic fronts (service, manufacturing, consumer confidence). I can only hope that this will lead to (1) another fed interest rate hike and (2) cheaper homes so I can get in on a piece of the real estate pie :)
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