Sector financial performance:

This company, primarily a marketer of jewelry, fashion, beauty& health, and home products through platforms including TV, online, and mobile, has been grouped into TV shopping retailer sector in retail industry.

It seems that, based on the typical company data, the demand, from TV shopping platform, for products of those companies in this sector in the past several years has been weak as indicated by the continuingly declining net sales (down 3% annually between 2015 and 2017). The decrease has been a combined result of decreased price (average 5% annual decrease in 2017 and 2016) and slightly improved shipped units (average 1% annual growth in 2017 and 2016). However, in 2018 we see that companies can already raise products price (4%) without negative impacts on sales units (only down 1% compared with 3% prior year). And things have been continuously improved in the recent quarter as we see the improved sales units.

Sales seem to be shifting away from traditional jewelry products to lower price products to capture advantage in price competitions probably as a result of increasing price pressure from retail industry. The promotion in price and shipping costs, as a response to declining sales, hurts companies’ profitability. In addition, the deleveraging of expenses as a result of declining sales caused much bigger problem in terms of cash inflow. However, as a reaction to the pressure on price, companies in this sector seem to be choosing to shift product mix to higher margin products.

The typical companies’ operating margin went down to about 3-4% in 2017. Most of companies’ cash flow thus significantly decreased during the same period. Margin was improved slightly in 2018 as sales rebound accompanying with rising price.

The typical average enterprise price/EBI ratio is about 49 with enterprise price/sales ratio of 0.23.

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Company performance:

It seems that the demand, from TV platform, for its products of this company has been weak and sales have experienced continuing decline between 2016 and 2017. The increase in shipped units in 2016 and 2015 had been driven by the significant decrease in price (promotions and markdowns). However, the decline in sales volume seems to slow down and revert in 2018 accompanied with rebounding price.

The first six months of fiscal 2018 compared with 2017 (ended 20180804)

The organic sales (excluding 53 weeks) increased 0.7% (1.2% for 2Q) primarily due to increase in price of 4% (0% for 2Q) as a result of product mix offset by decrease in shipped units of 1% (up 2% for 2Q).

The fiscal 2017 compared with 2016

The organic sales (excluding 53 weeks) decreased 4.8% primarily due to decrease in price (2%) as a result of product mix (less sold jewelry) and decrease in shipped units.

The fiscal 2016 compared with the 2015

The net sales decreased 4% primarily due to decrease in price (11%) as a result of product mix (less sold jewelry) offset by increase of 4% in shipped units.

The fiscal 2015 compared with 2014

The net sales increased 3% primarily due to increase of 9% in shipped units offset by decrease of 4% in price.

Its gross margin (including shipping and warehouse costs) was flat at around 36% since 2015 due primarily to price’s markdown offset by sales’ shifting to higher margins products. However, as its SG&A as percentage of sales increased to above 35%, its operating margin decreased to below 1% in 2017. Operating margin was improved slightly due to leverage of expenses as sales rebounded in 2018. EBI increased as a result of increased sales and leverage of SG&A.

Stock price

This stock currently has an enterprise price/sales ratio of 0.23 ($1.25). We think that its stock is being relatively undervalued considering the ability that it has presented to improve earning.