3SOF

On a happier note... I got my Fredericks of Hollywood catalog in and let me tell you it looks good . Its comparable to a victoria's secret catalog and a lot of catchy things in there with good looking models  very professional looking definately looks like it can go head to head with Victoria's Secret with the right management team. Here is the link to the catalog I recieved http://www.fredericks.com/shopCatalog/summer2007/

There are two separate issues on today's update. The first is the merger news with FOH and the second are MSI's financial results for the quarter.

1) Merger with Frederick's of Hollywood

• MOVIE STAR INC /NY/ Files SEC form 10-Q, Quarterly Report
EDGAR Online (Thu 5:14pm)

There are two things that are new to me here:

a) The delay of the closing of the merger, from Q3 to Q4, and the justification for that:

«The proposed merger is not expected to be completed until the fourth calendar quarter of 2007. The later than anticipated timing relates to a delay in the preparation of Frederick's audited financial statements for the fiscal years ended July 29, 2006 and July 30, 2005. Because Frederick's will be considered the acquirer for accounting purposes in the proposed merger, its historical financial statements for fiscal 2005 and 2006 must comply with accounting rules applicable to publicly-traded companies even though Frederick's is a private company. The application of these rules to the historical financial statements of Frederick's, specifically the application of ''push down'' or ''purchase'' accounting rules due to a change of control of Frederick's effective March 3, 2005, has taken significantly longer than originally expected. Since Fredericks has not delivered its audited financial statements by the date provided for in the Merger Agreement, we have the right to terminate the Merger Agreement, however, we presently do not intend to exercise this right.»

I think it's better to have a justification that not, and this explains why MSI doesn't reveal FOH's financial details, they don't have authorization to do so because the financial statements are not (yet) in compliance with SEC rules.

b) «b) authorize the issuance of up to 5,000,000 shares of preferred stock» Preferred stock? For what? Why? Disgusting. But, ok, many companies have the authorization to issue preferred stock but they don't do it, so let's hope MSI follows that path too.

So, not good news, but not terrible news either. At least they're keeping us informed of the merger process.

2) As for the quarterly results, not that they are of major importance to the outcome of this investment:

• Movie Star, Inc., Reports Fiscal 2007 Third-Quarter and Nine-Month Financial Results
Business Wire (Thu 5:56pm)

- The company's market cap is 16,372,000*$2.16 = $35.36 M;
- Revenues for the last 9 month period were $50 M;
- If we take out the merger related costs ($1.952 M) and the gain on the sale of the Pennsylvania distribution center ($0.496 M), we get to Income from operations of $2.831 M. Taking out $0.526 M of interest costs and applying a tax rate of 40%, I get to net income of $1.383 M for the nine months, if it weren't these special benefits and costs. Annualizing this I get $1.844 M in net income for a full year, which translates to $0.11 EPS.
- The stock closed yesterday at $2.16, so it is trading at 19 times trailing earnings (when special and one time effects are not considered). The Textile - Apparel Clothing industry average is trading at 21.5 times earnings, so MSI doesn't look overvalued to me.

buddjas1, as always, raised some valid concerns on MSI. I'm also concerned, but I see no reason to sell, I'm encouraged by MSI's revenue growth, I wonder if FOH's revenues are also growing 15% a year.

I realize there can be more pain down the road, but I'm confident that one year from now I'll be ahead on this investment, and I enjoy the business, I'll continue holding MSI.

MSI went down 5% on Friday after those disappointing news. Basically there wasn't anything new, just that we'll have to wait longer for FOH's financial details and the closing of the merger. But the merger doesn't seem to be at risk, since MSI could cancel it right away but it didn't.

On my valuation model for MSI I have a 1.03 dilution factor and a 1.15 revenue CAGR, and these estimates were confirmed by Q1 results (at least for MSI alone, it's a start). I can't say the same about the 5% net profit margin ... but I wonder, is FOH profitable or not? The articles on this thread tell me it is profitable, but by how much? I don't know, I'll have to wait for the financial statements, that need to be put in accordance with the SEC rules.

I'll keep holding MSI.

MSI continues to bleed slowly, and I'm now losing 35% on this stock, which exceeds my money management rule of never losing more than 2% of total equity in one single trade. Just by a bit, but it exceeds, and that hurts (I honestly don't care about the money, but disobeying a money management rule that has been so valuable to me over the years, that is troublesome).

I wonder if I shouldn't just let go and forget, should I? Don't worry, I'm not asking you, I'm just thinking loud ...

I'm thinking, I now have just 3.9% of total equity in this stock (because of too effects, the first is the stock declined and the second is the main portfolio rose anyway, therefore MSI's weight in the portfolio declined), so the percentage of total capital at risk is lower now. Fundamentally I can't imagine much further downside, because, at current prices, the market is valuing FOH at about $48 M, and since I know the company was taken private in 1997 for $70 M (after a bidding war, there were higher competing offers, but due to regulation issues they took the $70 M), this seems outrageously low. Also because I truly enjoy www.fredericks.com, and the website not even existed in 2007, and probably now accounts for half or more of FOH's sales.

There are many reasons to justify that I keep holding MSI, but no reason should be enough for me to disrespect a money management rule. On the other hand I promised to hold MSI whatever happens until FOH's financial details are publicly known.

Ok, here's what I'll do. I'll keep holding MSI.

I know volume was very low, with just 12,400 shares changing hands, but I feel better about MSI now, since the stock is closer to getting back to the "less than 2% loss of total equity in one single trade" zone. I really dislike to be losing more than 30% in one single stock (since I invest 6.66% of capital in each new stock, when I'm losing 30% that means 2% of total equity).

I didn't sell MSI today, I sure ain't going to sell it tomorrow.

Having made the decision of waiting for FOH's financial details whatever happens to MSI's share price, I wouldn't mind to see the stock sleeping around current levels as we wait for the numbers. The 200 days SMA is slowly but surely catching up and it can also provide some support (today at $1.66).

Let me check www.fredericks.com, one of the causes of all this wait. Perhaps a bit too aggressive today, but they have to make something different, or else there wouldn't be any difference to what one can find at Wal Mart, for example.

I'll continue holding MSI. 

Curiously enough MSI's volume has been above average over the last couple of days, as the stock refuses to break $2 on the downside. As I see it the stock is too cheap to handle at current levels.

Let's just check MSI's market cap today (considering the merger with FOH will indeed happen):

- We have 16,423,326 MSI shares outstanding, valued at $34.98 M;
- 23.7 million shares attributable to FOH, valued at $50,48 M;
- $20 M rights offering.

Putting it all together we get a $105 M value for the combined company, which has $200 M in annual sales, so the Price to Sales Ratio is 0.525. The average price to sales ratio of the Textile - Apparel Clothing industry is 0.73. Annual sales is the only number we have, so I'll work around it.

I'll continue holding MSI, the stock is almost getting out of the embarrassing zone.

We don't know why, but volume has been creeping up on MSI over the last three sessions. There's a subtle issue here, which is: MSI + FOH merger probably will only happen in Q4, but MSI may disclose FOH's financial details when the SEC gives authorization to do so, and that can happen anytime.

So maybe we'll be positively surprised with good news before expectations, but I'm just speculating here. It would be very nice to have one or two insiders buying shares around current levels, that would be a strong sign that good news are ahead of us.

I'll continue holding MSI.

Chart looks very nice now ...

We should have a nice move very soon 

I will buy it today for sure 

Quote from: Garoh on May 21, 2007, 04:47:24 AM
Chart looks very nice now ...

We should have a nice move very soon 

I will buy it today for sure 

Hi Garoh, unfortunately the price didn't respond in a bullish way to the volume above average. We've already discussed all publicly know information about this company and FOH. The problem is there isn't much publicly available information about FOH, at least not of the financial type.

I'll keep waiting and holding, since I've decided not to sell MSI without knowing FOH's financial details.

Volume has been above average for the past 5 sessions, which is a positive technical sign. It would be nice if this were an anticipation of a relevant fundamental change. Garoh is usually one day early on his technical predictions, but he's usually right. Time will tell.

I view MSI as too cheap here and I'll keep holding and waiting for the company to disclose FOH's financial details. Let's check www.fredericks.com, always an interesting view.

Quote from: David Randolph on May 22, 2007, 04:29:18 PM
Volume has been above average for the past 5 sessions, which is a positive technical sign. It would be nice if this were an anticipation of a relevant fundamental change. Garoh is usually one day early on his technical predictions, but he's usually right. Time will tell.

I view MSI as too cheap here and I'll keep holding and waiting for the company to disclose FOH's financial details. Let's check www.fredericks.com, always an interesting view.

David

Volume is picking up and the stock is slowing down ..

We could see a new low maybe this week before the rebound usually in the same day 

I'm in at 1.99 today and we just need to wait and see what'll happen . The chart is very interesting now .

B-Band becoming very tight.  $2.0 holding firm as the bottom of a nice triangle.  Time to see some movement, up or down. 

Quote from: buddjas1 on May 23, 2007, 08:50:02 PM
B-Band becoming very tight.  $2.0 holding firm as the bottom of a nice triangle.  Time to see some movement, up or down. 

Nice to see you buddjas1

I agree with your short term technical analysis. By the way, congrats on your trading decisions on SILC and CIMT.

There wasn't any news out of MSI, but the market is saying that perhaps something is about to be announced. However, the market didn't have a clue of the future when it pushed MSI to $3.5, last February, so TA's track record on MSI is poor.

I remain committed not to sell before FOH's financial details are made public, since I believe they're attractive enough to justify a higher valuation.

I'll keep on holding MSI.

Nothing happened on MSI today (which is better than falling sharply). I'll keep holding and waiting for FOH's financial details.