Friday, December 16, 2005

BAMM: Turn the Page

Books-A-Million (BAMM - $9.05) is a leading book retailer principally operating in the southeastern United States. The Company operates both superstores and traditional bookstores.

For the nine months ended this past October 29, the Company reported net income of $1.9 million, or 11 cents per diluted share, compared with $1 million, or 6 cents a share, in the prior year period. Net sales increased 5.4 percent to $343.1 million in the most recent nine-month reporting period, compared with sales of $325.5 million in the year-earlier period. Comparable store sales increased 2.9 percent in the first nine months of the company's current fiscal year.

On December 13th, Books-A-Million filed its most-recent 10Q, and a read-through uncovered some discernible 'soft-spots'. Why, if the Company is profitable, did operating activities use cash of $6.8 million? Given that cash flow from operations is the Company's principal source of liquidity, management must find some way to improve its operations (margins) if the Company is going to be able to cover recurring cash uses in the coming quarters.

Investors might also note that back of the hand calculations show that books rotate in-and-out of inventory every 280 days-or-so. So what? Slow moving product means that management is more dependent on working capital to pay bills--like employee salaries, heat and electricity. But guess what, a little number crunching uncovers that working capital, excluding inventory and pre-paid expenses, is $(126.5) million...oops! Now where are those annoying credit-card solicitations when you need them most!

If you want to see one big happy family, let's talk about related party transactions:

  • Current family roster: Clyde B. Anderson-Executive Chair & Terrence C. Anderson-Director of Books-A Million.

  • The Company purchases a substantial portion of its magazines as well as certain of their seasonal music and newspapers from Anderson Media Corporation. During the thirty-nine weeks ended October 29, 2005, purchases of these items from Anderson Media totaled $25,425,000, compared to $24,645,000 during the same period last year.

  • The Company also purchases certain of its collectibles and books from Anderson Press, Inc. an affiliate through common ownership. During the thirty-nine weeks ended October 29, 2005, such purchases from Anderson Press totaled $1,162,000, compared to $580,000 during the prior year period.

  • The Company also purchases certain of its greeting cards and gift products from a C.R. Gibson, Inc., another affiliate through common ownership. According to the Nashville Business Journal and The City Paper, C.R. Gibson was sold in 2001 for $35 million to CRG Acquisition Corp. CRG is comprised of private investors closely associated with Atlanta-based Treat Entertainment and media distributor Anderson News Corp. Harold Anderson is the chairman and CEO of Treat Entertainment. Is this getting old yet?

  • The Company purchases certain magazine subscriptions from, a privately held corporation based in Franklin, TN, just outside of Nashville. Launched in 1996, its website is And guess what: Its investors include Meredith Corp. (publisher of titles like Better Homes & Gardens and LadiesÂ’ Home Journal), Time Inc. (publisher of top titles like People and Sports Illustrated), and Anderson Media.

  • Best of all...Books-A-Million pays product, import sourcing and consolidation service fees to Anco Far East Importers, LTD. The total paid to Anco Far East was $1,768,000 during the thirty-nine weeks ended October 29, 2005, compared to $905,000 during the same period last year. Anco Far East is better known as one of the largest exporters of fireworks from China. According to a University of Alabama Alumni news bulletin, Anco Far East was started in1962, when Charles Caine Anderson (former member of the Board), together with Chan Fu Yu formed A. Yu Far East Co. in Hong Kong. [ed. note. books, fireworks--must be some other connection.)

  • Coming in behind publicized sales forecasts....not to worry. The Company sold books to (received returns from) Anderson Media in the amount of $239,000 during the thirty-nine weeks ended October 29, 2005, compared to ($78,000) last year. Any 'material' wiggle-room in this related transaction?

  • Lest we forget that Books-A-Million is a publicly-owned company--management leases its principal executive offices from a trust, beneficiaries of which are the grandchildren of Mr. Charles C. Anderson. The lease extends to January 31, 2006....and....Anderson & Anderson LLC, also leases three buildings to the Company.

  • The Company also subleases certain property to Hibbett Sporting Goods, Inc., a sporting goods retailer in the southeastern United States. The Company's Executive Chairman, Clyde B. Anderson, is a member of Hibbett's Board of Directors. Care to play a variation of Six Degrees of Kevin Bacon? In this blog called: Six Degrees of The Anderson Family? In 1980, The Anderson Family purchased the 14-store Hibbett Sporting Goods chain, which began a rapid growth that culminated in the company going public on Oct. 16, 1996.
  • And let it not be forgotten: The Company shares ownership of a plane, which the Company [purportedly] uses in the operation of its business, with an affiliated company. [ed. note. Would flying to an Anderson family picnic on the Company plane be considered business?] And guess what? The Company also occasionally rents a plane from Anderson & Anderson LLC as well.

Time to turn the page and close the book on BAMM.

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