Friday, June 20, 1997

Day Runner
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http://www.dayrunner.com
Phone: 212-448-3800
Price (6/20/97): $31 1/4

HOW DID IT DOUBLE?

Like its speedy trademark, Day Runner shares have raced up the chart in recent months. After a late December announcement of a revenue and earnings shortfall sent the stock as low as $15 1/2, it has been a steady jog back to new highs ever since. The company's optimism has been contagious and the launch of new product lines invigorating... like a cardiac workout through Central Park.

BUSINESS DESCRIPTION

Day Runner is the largest supplier of paper-based organizers for the retail market. Since its 1980 debut, the California-based company has sold more than 20 million organizers and planners through more than 20,000 retail outlets, including discount stores and office supply stores.

FINANCIAL FACTS

Income Statement

      12-month sales: $123.7 million
      12-month income: $11.4 million
      12-month EPS: $1.70
      Profit Margin: 9.2%
      Market Cap: $203.1 million

      Balance Sheet
      Cash: $27.8 million
      Current Assets: $68.4 million
      Current Liabilities: $14.6 million
      Long-term Debt: $0.1 million

      Ratios
      Price-to-earnings: 18.4
      Price-to-sales: 1.6

HOW COULD YOU HAVE FOUND THIS DOUBLE?

Panic sellers failed to take a close look at the December warning. Maybe if they had used their Day Runner organizers to better manage their time, they would have gotten to CEO Mark Vidovich's assurances. He noted that the decrease in sales, and therefore earnings, was not reflective of weakness at Day Runner's major accounts. A shift to just-in-time purchases at office supply stores and a "logistical" inventory problem at Wal-Mart were not expected to have a lasting impact on future fiscal reports.

"Our analysis of the strong growth in these customers' sales of our products to consumers causes us to believe these decreases are temporary," Vidovich said. Those who heeded that message could have held their ground or bought in as shares fell from $24 to the intraday low of $15 1/2 on December 24.

Results came in at the high-end of the company's revised expectations a month later. Then, in February, the company announced a share buyback of 600,000 shares. That was almost 10% of the shares outstanding and it was not just lip service. In April the company stated that it had already bought back 224,300 shares at an average price of $25.69.

For a relatively thinly traded stock with average daily volume of about 30,000 shares, it's easy to see how such an intensive assault of buy orders in such a short period of time could have placed the equity on a fast upward track. With ample cash on hand, enough to buy a million shares in total if it so desired, there was probably good reason to believe the stock would continue to rise even from the mid $20s.

WHERE TO FROM HERE?

December's warning proved to be as bleak as March's pre-announcement was positive. Wal-Mart's inventory problems were resolved and office supply superstore orders had picked up as expected. The company abandoned attempts to acquire two different companies, which beefed up expenses and ultimately led to earnings of only a penny a share in its seasonally slowest quarter. With these troubles behind them, it seems like clear running from here on out.

The analysts have raised earnings estimates for the 1998 fiscal year, which begins next month. In the last three months, the EPS projection has gone from $2.18 to $2.37. In addition to the share buyback, which will have a favorable impact on EPS by reducing the number of shares that net income will be divided into, new accessories have also been launched this quarter.

Home Manager is a new product line aimed at busy homemakers, and the company is also launching organizers and refills based on Gary Larson's now defunct (and still very popular) "The Far Side" cartoons.

Yet no marathon lasts forever, and after the recent run-up it would be understandable if the stock takes a breather. That is, of course, unless the company buys more shares, in which case it might be off to the races once again.

-Rick Aristotle Munarriz ([email protected])

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