Handleman MMQB

The following comment was left and I thought I would pull it out of the comments for you to read:

MONDAY MORNING QUARTERBACKING--WARNING SIGNS THAT WERE FLASHING:
#1-Revenues for the second quarter of fiscal 2006 improved prior to the year ago period because of ACQUISITIONS--NO ORGANIC GROWTH! #2., 48% of the increase in past revenue was attributable to a strengthening of local currencies. #3--LOST MAJOR CUSTOMER IN 2Q to a competitor. #4--Co. in current year was having trouble getting a HANDLE [no pun intended]ON COSTS: Direct product costs as a percentage of revenues was 82.1% for the second quarter ended October 29, 2005, compared to 79.8% for the second quarter ended October 30, 2004. #5. CFFO SHOULD FOLLOW PROFITS-- Company was reporting positive operating profits--bit cash flows were coming in USING CASH! #6--Just because company is buying back its own stock does not necessarily mean its a good investment--could be masking EPS weakness, for less shares outstanding = higher EPS!

Finally-I have followed HDL for 20 years [even when i was a retail broker for Merrill Lynch. Company has always intrigued me--Back then--figured Company would benefit from switch to CDs from LPs...later-switch from VHS to DVDs. Upcoming GRowth catalyst(s) UPGRADE to HD-DVD and/or BLUE-LASER DVDs???

Enjoy your musings!
David J Phillips, Publisher
www.10qdetective.blogspot.com

David gives us some great insights on HDL and what is going on. I still believe the market's reaction to this report is overreaction because, to me, the vast majority of this information was known before the earnings release (David would agree)...with the exception being just how bad the margins in the business are, and that the declining trend is a continuing pattern. The Crave Entertainment acquisition is not helping this situation at all. I, however, am sticking by my belief that HDL is undervalued, but I won't be touching it for a little while until the dust settles.

The interesting piece David gives us is his speculation on HDL's potential market to grow in. I'm not so sure about it, though. Time will tell. I want to know why Handleman is losing customers. If any of you out there know off the top of your head, please leave a comment! I will be tied up in classes for a few days and may not get to it.