JRJR Networks Update

July 4, 2016 at 11:39 pm 1 comment

JRJR filed the long awaited 10k for 2015 this week and we have now had a chance to review the actual numbers. We note that much of our enthusiasm for the JRJR trade was based on three beliefs –

  1. that there was significant latent value in the gourmet foods division (YIAH) that might soon be realized
  2. that a major turnaround was occurring at Longaberger
  3.  that Agel was at an inflexion point due to the release of the new Caspi skin care line.

    The gourmet foods division (YIAH) was growing like wildfire through the end of Q3 and we believed that division alone could be worth the majority of the then existing market cap if the company could continue to grow anywhere close to the pace they had maintained each quarter since acquiring it. This division had been growing at a blistering pace that matched the growth of several high profile gourmet food delivery companies that were receiving eye-popping valuations in the private funding markets and we had reason to believe that YIAH might continue that growth as it was just starting to enter the US market. We did not hear much discussion of what happened with YIAH during Q4 on the conference call and of course, the conference call was held several days before the financials were released so there was not an opportunity to inquire, but the company apparently hit a bump in the road as the growth did not continue into Q4 at all. It appears that YIAH actually contracted significantly from a revenue standpoint in Q4, falling from Q3 revenue of $6.5m down to revenue of $3.9m.

    There had been talk of a major turnaround occurring at Longaberger that started towards the end of Q2. Q4 is traditionally very strong for retailers and purveyors of wares like the Longaberger product portfolio and the constant flow of positive talk from Longaberger leadership gave us reason to believe that things were going very well. While there may be some positive trends occurring there that are not ascertainable from the reported revenue and profit figures, it appears that Longaberger revenues were down substantially over the prior year’s results.  Given that the quarterly revenue contribution for Kleeneze and Betterware was likely in the $20 million range (plus or minus a million – these numbers are not broken down in the reported numbers but we can glean an approximation based on the revenue run rate when each was acquired during 2015), we can then back into a Longaberger revenue figure to get a number that is more of an apples to apples comparison with Longabergers’ prior year performance. Using this approach it appears that Longaberger’s revenue came in substantially lower than the prior year’s Q4.

    With Agel, much of our enthusiasm was derived from comments by management on the Q3 conference call that led us to believe that Caspi was going to be a major game changer for Agel. We thought that the Q4 launch of Caspi plus the momentum of the heralded Bio product released late in Q3 would lead to a strong boost in Q4 sales for Agel. While there was an improvement in Q4 revenue vs Q3, it appears that revenues for Q4 2015 ended up being approximately 11% lower than what they were in Q4 2014.

    Thus, the three key items we were looking to for improvement in JRJR’s Q4 report did not materialize – they did not show the continued growth (YIAH) or the improvement (Longaberger and Agel) that we were hoping to see. In our experience, long delays and missed filing deadlines seldom occur when things are going well generally and we found this to hold true for JRJR in Q4. Given that we again find ourselves in the position of waiting to view financials from a deadline that passed many weeks ago (this time for Q1), we continue to view JRJR shares as a very high risk and we think  those who went against our earlier recommendations to cut their risk in JRJR should proceed with much caution here.

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1 Comment Add your own

  • 1. Kareem  |  July 5, 2016 at 8:49 am

    What’s missing above is that the company produced positive cash flow from operations in q4 for the first time in company history to the tune of $650,000 (compare q3 and q4 statement of cash flows). Also missing is that they achieved sequential growth in q3 and in q4. Everything in this article compared it to prior year and not sequentially. Also if comparing to prior year, they lost over $5 million on a cash flow from operations basis in q4 2014 vs a positive $650,000 in q4 2016. Also not mentioned was that they had to take 7.7 million of write offs in q4 from the vigorous audit BDO conducted. This in essence “hid” what was effectively a very positive turn around quarter for the company. One only needs to look at the cash flow statement to see this.

    Reply

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