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<DAILY TROUBLE>
Tuesday, December 1, 1998
Let's Talk Cellular & Wireless
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Phone: 305-358-9068
Website: www.letstalk.com
Price (11/30/98): $5 5/8
HOW DID IT FIND TROUBLE?
Let's talk about two college buddies beating the odds of entrepreneurial hardship and starting up a company to canvass shopping malls everywhere with cellular phone selling kiosks. Let's talk about a snag in frenetic expansion when acquisitions and sluggish sales leave the company hanging up on Wall Street's expectations. Let's talk Trouble. Let's Talk Cellular.
Over the past three years, sales for the retailer had been explosive. From $13.6 million in 1996 to $30 million in 1997 to $122.5 million in fiscal 1998, the company was seemingly a well-connected growth story. The number of outlets grew from 25 to 248 during that time.
Let's Talk had been on a buying binge. Telephone Warehouse, Cellular USA, and Cellular Unlimited were all absorbed last year even before the company's November initial public offering.
By April, five months after the company's equity debut, the stock price had doubled to peak at $24 a share. Then sales began to soften in May and June. In July, with the shares already under selling pressure, the company announced that both sales and earnings would fall below expectations. It was a call Wall Street didn't want to answer.
BUSINESS DESCRIPTION
Let's Talk is the largest independent cellular retailer in the country with 248 locations open as of the end of fiscal 1998. The company derives an activation commission from cellular carriers with every new sale -- as well monthly residual income based on a percentage of usage.
In March the Miami-based company added to its long list of acquisitions when it purchased Cellular Warehouse.
FINANCIAL FACTS
Income Statement*
12-month sales: $122.5 million
12-month income: $0.37 million
12-month EPS: $0.05
Profit Margin: 0.3%
Market Cap: $43.9 million
(*before charges)
Balance Sheet
Cash: $1.7 million
Current Assets: $35.5 million
Current Liabilities: $32.2 million
Long-term Debt: $19.3 million
Ratios
Price-to-earnings: 172.5
Price-to-sales: 0.36
HOW COULD YOU HAVE SEEN IT COMING?
You can't always believe what you read. Back in June, when the company was reporting results for the April quarter, President Brett Beveridge noted that Let's Talk had "successfully integrated several acquisitions."
Three weeks later the company announced that the fourth quarter shortfall was due, in part, to the "higher than expected costs related to the integration of previous acquisitions."
Not so successful, is it?
This debacle was probably hard to avoid if you went by press releases alone. The June 10 report of the April quarter painted a rosy picture, with 10% same-store sales gains, but it never got around to saying how sales had begun to weaken over the 40 days since the end of the period.
The one trend that may have steered investors away was the proliferation of competitors beyond the exclusive wireless retailers. Aggressive electronics powerhouses like Best Buy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> and Circuit City <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CC)") else Response.Write("(NYSE: CC)") end if %> have been selling wireless products for years, but now even traditional department stores like Service Merchandise <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SME)") else Response.Write("(NYSE: SME)") end if %> are getting into the action.
WHERE TO FROM HERE?
Nick Molina, who founded the company with Beveridge while the two were attending the University of Miami nine years ago and served as CEO, left in October. Don't cry for Molina as he leaves on good terms, and the company will report a pre-tax charge of $450,000 in connection with his severance package.
He also played a part in picking his successor, David Eisenberg. The new CEO has a proven track record in retail turnarounds. At previous leadership stints for Peoples Drug Stores and Chief Auto Parts, Eisenberg helped guide growing retailers out of the red and into the black -- making the companies so alluring that both were ultimately bought out.
Is the third time a charm? Eisenberg is 62 years old and seems to have chosen the company as his swan song for a few years of service before retiring into his new Brickell Key home. He is almost twice as old as Beveridge and seems to relish his gig as a mentor.
"Listen, I'll throw them over my shoulder and burp 'em if I have to," he recently told The Herald.
After the recent buying spree, a little pat on the back to help ease the digestion wouldn't hurt, that's for sure. Eisenberg has been a master of quick turnarounds so if history is any kind of indicator, Let's Talk shareholders might finally have something worth talking about -- but like most cellular phone calls, time is money.
-Rick Aristotle Munarriz
([email protected])
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