Author Topic: LQW.TO - Liquidation World  (Read 8036 times)

doc75

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Re: LQW.TO - Liquidation World
« Reply #10 on: November 19, 2010, 09:18:17 PM »
Well it seems to have broken out this week on 10X the average daily trading volume the last four days, picking up about 35%. I went in last week at 1.05 but since I timed my entry using technical indicators, I didn't think anybody here would be interested in hearing about it.

I planned on buying more the next time it went under $1, but didn't have an order in and missed it before the steep runup. 


doc75

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Re: LQW.TO - Liquidation World
« Reply #11 on: February 11, 2011, 11:40:06 AM »
I figured I should give an update here:   Just look at the chart and you'll barf.

I dodged a bullet and got out after seeing their margins get killed last quarter.

LQW announced yesterday that their Q1 numbers (typically the strongest, with Christmas season) amount to a loss in the $6M range.  Based on their revenue figure, their Q1 margins were also hideous.   They recently announced another financing --- $7M of convertible debs at 10%, with a conversion price based on recent trading range (hence plenty more dilution possible).   Yesterday they announced they're looking into additional financing, or acquisition or divestiture, after noting "interest in the Canadian retail landscape". 

Interesting that the management crew here has history at Big Lots... and Big Lots is also in play:

http://www.bloomberg.com/news/2011-02-10/big-lots-in-play-poised-to-bring-1-billion-shareholder-windfall-real-m-a.html


Uccmal

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Re: LQW.TO - Liquidation World
« Reply #12 on: February 11, 2011, 01:10:32 PM »
I took a really close look at this one just after Christmas.  Even went into one of their renovated stores and saw lots of junk.  I even made a purchase and felt kind of sorry for the cashier who also has to stock shelves. 

The proxy circular is what really turned me off though.  I forget the numbers exactly but the bonuses that would go to the CEO and CFO added up to 1/3 of net profit if the profit exceeded 1-2 M.  The result was that for profits up to 6 million a dead zone was created for shareholders.  If you back this number out - 6 m - you realize that they will never sell enough with post 2006 margins to reach it.  Their margins cratered and I think it has to do with the Walmart/costco/Winners/Canadian Tire effect.   Everyone of those chains sells the same stuff and is vastly busier, and the price differential is not enough to make a difference. 

They dont own their locations so there is no asset in the business so when the shares go to zero that is really zero.  The inventory on the balance sheet is worth probably 30% less in a resale situation if they bankrupt since they will suddenly flood the markets with more junk.  I was willing to overlook some of these issues but the pay to the CEO.CFO was the real kicker to me.  It was obscene and shareholder unfriendly.
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doc75

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Re: LQW.TO - Liquidation World
« Reply #13 on: February 11, 2011, 01:54:04 PM »
I took a really close look at this one just after Christmas.  Even went into one of their renovated stores and saw lots of junk.  I even made a purchase and felt kind of sorry for the cashier who also has to stock shelves. 

The proxy circular is what really turned me off though.  I forget the numbers exactly but the bonuses that would go to the CEO and CFO added up to 1/3 of net profit if the profit exceeded 1-2 M.  The result was that for profits up to 6 million a dead zone was created for shareholders.  If you back this number out - 6 m - you realize that they will never sell enough with post 2006 margins to reach it.  Their margins cratered and I think it has to do with the Walmart/costco/Winners/Canadian Tire effect.   Everyone of those chains sells the same stuff and is vastly busier, and the price differential is not enough to make a difference. 

They dont own their locations so there is no asset in the business so when the shares go to zero that is really zero.  The inventory on the balance sheet is worth probably 30% less in a resale situation if they bankrupt since they will suddenly flood the markets with more junk.  I was willing to overlook some of these issues but the pay to the CEO.CFO was the real kicker to me.  It was obscene and shareholder unfriendly.

Thanks for the notes.   I came to some of the same conclusions, though I should have more careful than I was with CEO/CFO remuneration.  (I'm so often amazed by this that I guess I got complacent.)

I was lucky to make good money and get out with the horrid margins last Q.  I discovered this Christmas that it was exactly the same junk inventory at the new stores as the old stores... and then I heard a quote from someone in management who proudly proclaimed they would buy "anything" (as inventory) if the price was low enough.   Since Christmas they've been having "80% off" clearance sales, so they're pretty desperate to clear some crap away.

I'm not sure if it was the Walmart effect that killed this business, or if they simply got crowded out of the liquidation/closeout space by bigger players like overstock (in terms of their purchasing ability).  It still seems to me there is a viable opportunity in this space, particularly with a high $. 

Long in the past, I could routinely find very good deals on reasonable quality products at their stores; it was true closeout inventory, not mass-purchased junk.  On an early CC this management team even indicated that they had to get back to the "roots" of being a closeout retailer.  Seems they've changed their minds.

Anyway... onto the scrap heap it goes!

Mark Jr.

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Re: LQW.TO - Liquidation World
« Reply #14 on: February 14, 2011, 08:55:37 PM »
Yeah, it looked interesting for awhile, but I think what has happened lately is the stock was "run up" ahead of the lockup expiry (December 18th I think) on that highly dilutive financing and those shares are being sold off.

I don't have confidence in management and think those financings last year were pretty one-sided.

Mark Jr.

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Re: LQW.TO - Liquidation World
« Reply #15 on: February 15, 2011, 06:49:38 PM »
Funny, I got my copy of Mohnish Pabrai's "Mosaic" today and I randomly flipped it open and there's Liquidation World, cited in his essay "The Sure Bet of Corporate Morticians". I think I read here somewhere (on this board) that he had long ago exited LQW.

Mark Jr.

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Re: LQW.TO - Liquidation World
« Reply #16 on: May 26, 2011, 08:10:48 PM »
What an ignominious end to the long odyssey. Liquidation World to be purchased by Big Lots for 6 cents / share + assumption of debt.

http://www.reuters.com/article/2011/05/26/us-biglots-idUSTRE74P35720110526?feedType=RSS&feedName=globalMarketsNews&rpc=43

Is this completely kosher?

Didn't Seth Marks used to run Big Lots? And then his own Talon Capital lent money to LQW, they did those highly dilutive financings which seemed to run the stock price up, then seemingly on cue, as soon as the lockup on those private placements expires: the price tanks. Now Marks' former company buys  his present one, and assumes the debt owed to his financial company?

Am I the only one who finds this disingenuous?

Uccmal

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Re: LQW.TO - Liquidation World
« Reply #17 on: May 27, 2011, 04:01:25 AM »
Almost illegal wouldn't you say?  Hopefully everyone dodged this one.

I wonder if Mr. Marks has ownership stakes in Big Lots that enable him to swing this deal? 

I am guessing that LQW is in for liquidation rather than refurbishing.  1.8 Million plus debt is probably covered by inventory.
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