FLMike

Connoisseur
5,796
United States
FL
West Coast
The only expertise they have is producing crap shoes at sweatshop prices thereby maximizing the profit margin.
Well, to be fair, they also have expertise in running a chain of 1,000-plus retail stores that sell such shoes (their own brands and others). Here is the line-up of men's "dress shoes" available in their Famous Footwear stores. I cringe at the thought of some AE- or AE derivative-branded shoes showing up within that line-up.

http://www.famousfootwear.com/Mobile/Results.aspx?originalReferrer=www.famousfootwear.com&icid=mensLP_LNdress&N=4294957708+6208
 
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Clintotron

Senior Member
775
United States
Louisiana
Lake Charles
I can't see how AE can charge anymore for their shoes, at least the retail price. If they cross over the $400 threshold and certainly if they approach $500, there are far better competitors.

The way they will increase profits is by churning out shoes from overseas sweatshops. That's probably what Ms. Sullivan is talking about when she mentions "sharing our expertise" and "capabilities inherent in a much larger footwear company".

The only expertise they have is producing crap shoes at sweatshop prices thereby maximizing the profit margin.
These mergers always contain generalizations that prevent us from having a sure idea in what the direction is or will be. I do understand the need for ambiguity for legal butt-covering, but it forces us to wait for the old expression "time will tell" to come into fruition.


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FLMike

Connoisseur
5,796
United States
FL
West Coast
These mergers always contain generalizations that prevent us from having a sure idea in what the direction is or will be. I do understand the need for ambiguity for legal butt-covering, but it forces us to wait for the old expression "time will tell" to come into fruition.


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I would agree with you in the case of private equity acquisitIons. However, when the buyer is a public company, the strategy is very clearly articulated by management to shareholders, and to the analyst/investor community at large. In the case of the AE deal, Caleres management has promised to provide more details regarding the acquisition during its fourth quarter earnings conference call.
 

FLMike

Connoisseur
5,796
United States
FL
West Coast
I wasn't going to reply to Dhaller's post, because I figured kudos to him for trying to put some numbers to it. However, there are many, many flaws in his analysis. You've hit on but one. He made some assumptions to try and estimate sales, and then back into earnings using some industry average PE multiple. Even if his assumptions about sales and PE were good (not sure that they are), the denominator of PE is net (after-tax) earnings. So he then calculated a net earnings margin for AE of 4-5% and compared it to the Caleres gross margin of 40.7%. Totally apples and oranges. The Caleres net margin is 3.2%, by the way (according to their 10-K). AE's gross margin is unknowable. Another major issue with the whole analysis is that the numerator of PE is equity price. We don't know the equity value of AE, only the total (enterprise) value of the transaction, which includes AE's LT debt. You don't really use PEs when discussing private company valuations anyway. The proper comparison would be enterprise value to EBITDA (earnings before interest, taxes, depreciation & amortization), compared to industry average EV/EBITDA multiples. Bottom line is we just don't have enough information on AE to make comparisons, or to even determine the true success of Brentwood'a investment in AE. While we may know their purchase price and sale price, we don't know how they put together the capital structure (sr/sub debt vs equity), or how much additional equity or debt capital they may have invested during the time they owned AE. Again, there were lots of holes in Dhaller's analysis, but all the info you could possibly want on Caleres is easily accessible in their 10-K filing.
Following on these comments, an analyst who covers CAL stock has estimated AE revenues of $160-180 million, gross margin of 45-49% (versus 40.7% for CAL), and EBIT margin of 9-12% (vs 5.2% for CAL). So, AE already has higher profit margins than CAL. The analyst noted AE's low department store exposure, and identified adding to AE's small wholesale presence (estimated 70/30 retail/wholesale mix) and driving international growth (currently just 5% of AE sales) as key opportunities. He also suggested that CAL's capabilities in product design and sourcing, as well as warehousing and distribution, will naturally complement AE's existing business. No specific mention of moving production overseas, but he did cite the fact that almost all AE products are sourced in the U.S. as a reason to like the deal. Read into that what you will.

CAL management intends to provide more details regarding the acquisition during its fourth quarter earnings conference call in mid-March.
 
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AllenEdmondsCEO

Active Member with Corp. Privileges
175
United States
wisconsin
port washington
Season's Greetings,AAAC Friends -- I've read through most of the comments in this thread. But it has been a busy several weeks and I have obligations to address, so I'm going to reply in general now and hope to get back to you in early 2017 for more interaction..

Caleres bought AE as the cornerstone of their strategy in men's dress and dress casual footwear and lifestyle branded products, where they currently hardly compete. I'll report directly to CEO Diane Sullivan, who's a great person and, like me, prefers to focus on vision and strategy. I like her already. We've known each other for about 3 years and she's been helpful in the past on a personnel recommendation. It's terrific to be bought by a company that doesn't have other men's brands for us to have to maneuver around. We can expand and grow now with no constraints because some other brand in the portfolio has a corner of the marketplace, well, cornered.

Our strategies will stay the same but grow, and the team is all staying in place. Caleres bought us because of what we could do with them, not what they could do to us. They have respect for our 95 year heritage, for how we do things differently than the women' side of their business, for the fact that we're a higher-end brand and that a high price:value relationship is our hallmark and for our management team. Importantly, they know we have one of the most impressive customer bases in menswear.... by far. So the changes you'll see will be those of intensifying who we are and what we do in good ways -- more marketing and customer development because of their longer term time horizon.

Manufacturing in Port Washington is our core commitment. It's not going away. Period. Count on that one. The "materials sourcing assistance" they can give us is in componentry. They know European tanneries, sole makers and last manufacturers that we don't really know but who could be helpful.
Time marches on and change is inevitable. The Allen family, after 3 generations of ownership, ran out of scions to run the company and sold in 1983 to a group of investors led by John Stollenwerk. John took over leadership and ran it until 2006 but he had no heirs to turn the business over to either, so he sold to GoldnerHawn, where I worked. I came in as CEO two years later after some serious troubles and, over the first couple of years, made some serious personnel changes in parts of senior management and product development. We thought we'd be bought in 2013 by a strategic buyer/industry player, which is when I first met Diane Sullivan, but we were bought by Brentwood instead, another private equity firm. The folks in Northampton and in Massachusetts do indeed make good shoes, but they are all quite a bit smaller than today's AE and were never candidates. Brentwood brought some great expertise to us in catalog strategy development, retail store design and site selection -- which really helped catapult the company these past three years. Caleres approached them and gained a chance to do due diligence and negotiate a purchase on an exclusive basis. We weren't actually "for sale" but they met Brentwood's requirements.

Each time the company has changed hands, the new owners have made the business better. I'm really confident that will again be the case with Caleres and my team and I are excited about the potential. Please rest assured. We know who Allen Edmonds is and what makes it successful. We'll keep it going that way. (However, I realize a couple of you don't see the good in that statement. Ah well. We'll press on nonetheless.)

Happy Holidays to you all!
Paul
 

CSG

Inactive user
737
United States
West
A valley along a canyon
Thanks for the response, Paul. I must say though, your quality control is wanting. I had two pairs of Schrier loafers sent to me, both with significant manufacturing defects. I'm getting to the point where buying online from AE is getting too problematic. Feel free to PM me for details. I'd love to buy some McAllisters and get a decent pair of Schriers but I'm tired of waiting on hold for customer service and then a few weeks for a refund.

Chris
 
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Watchman

Advanced Member
2,208
United States
IL
ChicagoLand
Thank you Mr. Grangaard for you gentlemanly response. You have struck me as a stand up guy every time I have read or met with you.

Blessings to yourself and AE. I wish you all the best.

Thanks.
 

Pentheos

Advanced Member
2,971
United States
Wisconsin
Clinton
Soon we'll be seeing AE in outlet malls alongside Sperry, Nike, and Reebok. D widths only. Thank you very much.

The death of a brand.
 

drlivingston

Connoisseur
7,011
United States
of
America
Paul has been a friend to AAAC for quite a while. I do hope what he says comes to pass. However, I worry that Ms. Sullivan is humoring him until she can figure out a way to outsource production and maximize profits. Many of you will remember when they shifted boat shoe production from Lewiston, ME, to the Dominican Republic in 2006. Then there is the handsewn "made in the USA" line which are 90% constructed in the DR. They are then shipped to Port Washington for final construction so that they can legally bear the "made in the USA" label. I fear that their international production footprint is about to rapidly expand.
 
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