I wasn't bullish on 1-800 Contacts
Net sales increased 5.3% to $63.5 million. Operating income more than doubled to $4.4 million, and the bottom line increased to $1.2 million, or $0.09 per diluted share. This far, the numbers looked promising and represented a stark contrast between this quarter and last. There was both an operating loss and a net loss for Q4, and the full year saw a net loss as well. So far, so good.
Hold on, though. We don't have a cash-flow statement attached to the release, but that won't stop us from checking out the latest 10-K filing, which I didn't have at the time of my last take on 1-800 Contacts. From this resource, I see that net cash derived from operations has been on the decline the past few years. Capital expenditures, on the other hand, have been rising. This means that free cash flow is decreasing.
Metric |
FY 2003 |
FY 2004 |
FY 2005 |
---|---|---|---|
Net Cash From Operating Activities |
$18.6M |
$13.3M |
$6.5M |
Capital Expenditures |
$2.8M |
$8.4M |
$15.5M |
Free Cash Flow |
$15.8M |
$4.9M |
($9M) |
Free cash flow is really the key to long-term shareholder value. Without increasing cash flow, 1-800 Contacts will find it very difficult to buy back shares, initiate dividends, or plow money back into the business.
In addition, there is a clear dichotomy between the U.S. and the international operating segments. The U.S. segment saw operating income of $7 million compared with the previous timeframe's $4.4 million, while the ClearLab international business experienced a widening of its operating loss, going from $2 million in red ink last year to almost $2.9 million in losses this year.
I won't dispute that 1-800 Contacts is a premier brand in its space or that it has effectively garnered mindshare equity, even in the face of competition from Bausch & Lomb
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Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.