Monday, November 2, 1998

Alba-Waldensian Inc.
(AMEX: AWS)
Phone: 704-879-6502
Price (10/30/98): $24


HOW DID IT DOUBLE?

It "seams" too good to be true. Seamless intimate apparel is taking off, and Alba-Waldensian, the unlikely pioneer, is reaping the benefits of more comfortable undergarments. For the obscure clothing company, it's a tale that shows how all it takes is one hit product to turn the fortunes around for a small company -- seamlessly simple.

Alba-Waldensian was a sleepy, forgotten entity, churning out hosiery and medical garb in the South. In 1997, sales fell to their lowest point in three years. That was just as demand for the company's seam-free underwear, fueled by the introduction of a full bodysuit earlier this year, began to heat up.

The results so far have been impressive. The company earned $0.78 a share over the first half of the year, reversing a year-ago loss. Then, in the third quarter, the company earned $0.74 a share -- almost as much as the whole first half of the year. Skyrocketing earnings growth rarely goes unnoticed. After trading as low as $4 1/2 back in January, the stock has been doubling over and over -- like a garment in a spin cycle.

BUSINESS DESCRIPTION

Alba-Waldensian has two distinct operations. Medical products are made in a Tennessee plant. The booming intimate apparel is produced in a recently expanded North Carolina factory. The products are sold to stores under private labels and under the company's proprietary brands While You Wait, All Day Long, and Big Beautiful Woman. The company discontinued its Byford product line of menswear last year.

FINANCIAL FACTS

Income Statement
12-month sales: $69.6 million
12-month income: $2.5 million
12-month EPS: $1.43
Profit Margin: 3.6%
Market Cap: $38.4 million

Balance Sheet
Cash: $0.006 million
Current Assets: $23.1 million
Current Liabilities: $6.7 million
Long-term Debt: $9.3 million

Ratios
Price-to-earnings: 16.8
Price-to-sales: 0.55

HOW COULD YOU HAVE FOUND THIS DOUBLE?

In May, the company's majority shareholder set out to liquidate its holdings. The stake stemmed from collateral issued under a defaulted loan. The bank unloaded the 938,700 shares at a price hovering near $8. It was almost a double from the January lows, but things were about to get even better.

Alba-Waldensian helped itself to 295,000 of those shares, paying a paltry $2.2 million and $150,000 in transaction costs in the buyback -- which retired an eighth of the shares outstanding into treasury stock.

Insiders bought the rest of the shares. The transaction spoke volumes about the faith the company had in its future -- and how the early run to $8 a pop was only the beginning.

WHERE TO FROM HERE?

Not only has the company reported earnings of $1.48 a share diluted so far this year -- President and CEO Lee Mortensen expects this final quarter to be at least as good as the stunner of a third quarter. That implies that the company will earn at least $2.22 a share this year, or just half of what the company was trading for at the start of the year.

The optimism has been beaming for months now. Back in August, the company announced another stock buyback, this one for a much smaller 40,000-share chunk of the shares outstanding, and also initiated the first of a semi-annual dividend. The company seems comfortable with its ability to continue its profitable ways, so now shareholders will get a little of that back.

The improvement in operations seems to agree with the cheery outlook. While sales have risen 21%, the bottom line has been even kinder. For the most recent third quarter, gross margins rose from 21% to 30%. Having both a unique and popular product has its advantages, chief among them being pricing flexibility and the ability to command higher markups.

While competition or a buyout offer is possible, Alba-Waldensian is destined to shine in the near term. The way the company's financials are trending, earning $3 a share next year is definitely feasible, given the company's fundamental momentum. That should help continue to shore up a financial snapshot that is actually more comforting than it appears at first glance. While the second quarter balance sheet showed just $6,000 in cash, the company actually has enough current assets to wipe out all of the corporate liabilities. So, stockings may run, but Alba-Waldensian may run even farther.

-Rick Aristotle Munarriz
(tmfedible@aol.com)


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