Fool.com: Brass Eagle Shooting Blanks? (News) December 20, 1999

Brass Eagle Shooting Blanks?

By Dave Marino-Nachison (TMF Braden)
December 20, 1999

Lazer Tag and Photon were neat, no question, but there was definitely something missing -- perhaps the unmistakable slap of reality one felt when a small, blue paintball smacked into your abdomen or, even better, splattered across an adversary's safety goggles.

And that's where Brass Eagle (Nasdaq: XTRM) came in. As the game caught on, shares of the paintball equipment maker made fans a lot of money between 1998 and the middle of this year, and many believed the story was only going to get better with the company setting up a paintball plant to make its own pellets.

But is the craze cooling? Perhaps it's a function of fallout from the media's devouring of school shootings; maybe it's been the proliferation of high-speed computerized simulations that make the idea of heading into the scrub for a little of the most dangerous game seem like a waste of gasoline. Could be neither. (Speaking of wastes, if you've a few dollars to burn, consider renting 1994's "Surviving the Game," a big-screen remake of Richard Connell's classic short story but with Ice-T and Rutger Hauer.)

Whatever the case, the shares are down some 75% from their all-time highs of May as sales disappointments the company attributed to a bevy of problems with its retail partners -- Brass Eagle relies heavily upon sales from the likes of Wal-Mart (NYSE: WMT) and Kmart (NYSE: KM) -- took their toll.

And while company officials have always maintained their belief in the long-term strength of the paintball market, CEO Lynn Scott let on in early November that it was looking to hedge its bets a bit.

"While our business remains robust at most of our retail accounts," Scott said in a November statement, "we believe there are some inventory issues in the distribution channel resulting from a slowdown in the rate of growth in the overall industry.... Our strategy is to proactively manage the challenges within the overall paintball industry and preserve our position in the market, while we simultaneously diversify into complementary businesses."

And so Brass Eagle is looking at expanding its product line while also getting into new lines of business, notably a Chicago-area extreme amusement park that will feature retail, restaurants, and sporting opportunities ranging from paintball fields to in-line skating, skateboarding, and mountain biking. International channels are also being explored, a move some investors likely consider belated.

McDonald & Co. Investments was brought in last month to help the company look at its options. Today, Brass Eagle said the process is ongoing and is considering everything, including the sale of the company. "We continue to aggressively pursue strategic initiatives focused on enhancing shareholder value," Scott said.

Meanwhile, expectations are being scaled back. Brass Eagle said it is looking for sales of $15 million to $16 million for the fourth quarter, down from $26.5 million last year; that means earnings of between $0.11 to $0.16 per share for the quarter, well off the year-ago $0.40 and First Call's four-analyst $0.52 consensus estimate. The company blamed "ongoing inventory issues" at a key retail account. Scott claimed it was "a temporary setback that is account-specific," and the company tried to soften the blow by announcing a buyback of 400,000 shares of company stock, about 5% of the total currently outstanding.

It wasn't enough to spur further optimism in the stock this morning as the shares fell another 5%. That the shares fell so far before Brass Eagle decided to try and boost optimism with an investment in itself might be behind the lackluster response in early trading today. With a balance sheet not particularly long on cash, the company's caution might be understandable. Still, investors looking through the bargain racks should probably exercise caution as the company seems as if it has a way to go before its turnaround efforts begin firing full-bore.

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