Some notes from the investor meeting in no particular order:
Uplisting
Uplisting / going public is clearly going to happen at some point in the future. Management wants to clean some things up as prerequisites:
-Add funding sources for Fingerhut (besides SCUSA)
-Improve credit performance (good trends already in place, should stabilize in 2016)
-Integrate Orchard
-Have an anniversary of Orchard acquisition plus a couple quarters to show a full year of clean financials
Bottom line: these activities push an uplisting to early 2017 (at the earliest)
Buyback
Management was very clear that they believed the stock price was very cheap. To the point that they (sort of) endorsed someone's back-of-the-envelope EV/EBITDA and said the multiple was much too low.
As a guiding principle, they prefer to reinvest in the business. The chairman read a statement, to paraphrase: "But the dislocation in the stock is such that when the board convenes in January, we will consider a buyback."
Orchard sales
Orchard sales down ~5% YoY.
Lots of initiatives to improve profitability at Orchard. No strong view on sales trajectory – it may attenuate a little before reaching 'steady state' according to CEO. But this was in their buy case. "I don't know exactly how sales will trend. What I do know is that profitability is going to get a lot better."
4Q
Management said 4Q coming in a little soft. By "soft" they meant, not at double-digit growth. "Mid to low single-digit growth" over Q4 2014. Part of this was due to advertising campaigns having already been felt, part is tighter underwriting of credit risks, part is softness that management feels retailers are feeling in general.
Credit agreements
Management actively pursuing additional funding sources. Could look like the SCUSA agreement (selling receivables) or another model (e.g., securitization with a partner). Goal is purely to diversify - we won't necessarily see better economics from new agreements. Management views economics of the current agreement as pretty good.
Risk-adjusted margin for their SCUSA is at 330bp, which is below the buffer of 500 bp that the SCUSA agreement calls for. This means BGRP has to sell receivables at a 200bp discount. This will hit earnings – essentially 200bp x Fingerhut sales – but management said the discount won't be in force for the full year. So somewhere less than 2%.
Reason for the performance: regulation putting a crimp on late fees (impact already felt) plus charge-offs.
Synergies
We got some better color on synergies.
$3M cost synergies already taken out, they'll be reflected in results for FY2016. Management didn't pin down a number for other G&A synergies, but someone tossed out a ballpark of $10M and management endorsed it as approximately correct.
In terms of production costs – I asked about impact of bringing Orchard PL products over to the Fingerhut platform, and using the Orchard sourcing network to get current Fingerhut private label items for less. Management put the impact at 1,000 bp for the relevant items – which translates to a "50 – 100 plus bp" impact on sales overall. They'll be ready to make the full transition later in 2016, so full impact won't be felt for a while.
