By Rick Aristotle Munarriz (TMF Edible)
August 14, 2000

Huffy Corp.

Ticker: (NYSE: HUF)
Phone: 937-866-6251
Website: www.huffy.com
Price (8/11/2000): $7 7/8

How Did It Double?

It starts with a son, doing all the right things to earn himself an inline scooter. It continues with a father -- hereafter referred to as "me" -- who soon finds that no retailer seems to be able to stock them fast enough.

A craze is born.

On an early summer day, my 6-year-old son rode down the aisles of Toys R Us (NYSE: TOY) on a Huffy Micro scooter -- the only one left -- and I scoffed at the price. Parental guilt ensued, only to find the Micro out of stock. Everywhere. All inline scooters gone. Everywhere.

I finally did land one, a Razor. It's a treat my son savors the same way an owner of a Honda Odyssey may have felt last year, or a VW Beetle owner the year before that. For Huffy, the hit product sensation couldn't have come at a better time.

After 65 years of stateside production, the company closed its last bicycle plant to outsource production last year. The cost-slashing Chinese bike market had sent prices reeling -- off 30% last year alone. Basketball equipment sales were also running sluggish.

Huffy was in trouble. A 1998 restructuring wasn't bearing fruit, and just two months ago the stock was treading barely above $3 a share. Then the microriding revolution became the Micro riding revolution. Huffy was back on the gift wishlist of riders and investors.

Business Description

Ohio-based Huffy makes bicycles, scooters, and basketball backboards. The company also provides retail services. Huffy takes the hoops life seriously as an innovator -- as the company recently introduced the Satellight illuminated rim and backboard set for night street games, and even an LED-lit basketball to go with it.

Financial Facts

Income Statement
12-month sales: $548.7 million
12-month income: ($39.7 million)
12-month EPS: ($3.88)
Profit Margin: N/A
Market Cap: $81.1 million

Balance Sheet
Cash: $2.2 million
Current Assets: $162.6 million
Current Liabilities: $128.3 million
Long-term Debt: $51.3 million

Ratios
Price-to-earnings: N/A
Price-to-sales: 0.15

How Could You Have Found This Double?

Trends come. Trends go. Spotting them early on, despite the historical dangers of holding on for too long, has typically been rewarding. As beaten down as shares of 4Kids Entertainment (Nasdaq: KIDE) might appear today, they remain a 10-bagger for Pikachu-inspired investors who caught on to the Pokemon licensee two years ago.

The scooter phenomenon has come fast and furious. But, unlike Pokemon or Beanie Babies (from privately owned Ty Corp.) in recent years, there is not one exclusive manufacturer.

However, Huffy had good reason to lead the pack. Last year, it was already beginning to generate some favorable buzz on Buzz -- a high-end motorized scooter with a bike seat and basket.

But the real "buzz" this summer was in the compact, folding scooter market. For the week ending July 2, point-of-sale research specialist SportsTrendInfo listed the Micro as the top-selling sporting goods product. That was a pretty sound endorsement for the niche and, just as importantly, Huffy's dominance within that niche.

Investors were slow to make the product connection. A day later, just 6,700 Huffy shares traded. The stock closed at $4 7/16 per share. It had already recovered off the June lows but, even vindicated by retail popularity, Huffy still found the market to be rough treading.

It was an opportunity, as trading volume and the share price began to creep higher, but with a market cap of just $80 million, is there more capital appreciation in store?

Where to From Here?

While toymakers revel in the fourth quarter, Huffy's seasonality doesn't play out the same way. It is the second and third quarters -- when summer inspires purchases -- that Huffy brings in the top dollar.

Sales have fallen over the past few years. The June quarter was no exception, as revenues fell by 3% to $167 million. But much of the decline was by design, as the company has been backing away from poorly performing product lines. So, while revenues slipped, margins and earnings climbed -- with the company reporting EPS of $0.44 from continuing operations.

The solid bottom-line showing, along with the interest in the Micro that the company indicates is coming in 10 times greater than initially anticipated, has Huffy revising its annual expectations higher.

Last month, Huffy announced that projections for the company to earn $0.60 a share this year were too low. It is now aiming at the $0.65 to $0.70 a share range. That's just five times what the stock was fetching back in June, and is still a relative bargain today.

The scooter craze is still in its infancy, and Huffy has the pedal power to see this through. In an atypical seasonal twist, Huffy's fourth quarter might be quite robust if the Micro movement picks up momentum. The company is in the process of expanding the Micro line, and even its signature bike line division is showing signs of life. While one would expect scooter sales to cannibalize traditional bicycle sales, that has not been the case -- Huffy's ESPN extreme sports themed X-Games performance bicycles have been selling briskly.

So, like the Micro itself, Huffy stock might still be able to open up and glide even further. Uphill. Due north.

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