Investors in retail-focused companies have nightmares about statements like these:
- "We're experiencing a slow start to the third [aka "holiday"] quarter."
- "We probably bit off a little bit more than we could chew and we're paying a price for it now."
- "Hopefully we'll have [this new product] into manufacturing in the next couple of weeks. But again, it's definitely going to miss the critical Thanksgiving weekend."
- "No, they're not going to make Thanksgiving. And that's going to be a significant miss for us, because frankly those first three products we had planned to be shipping by September."
Unfortunately for fans of gaming accessories specialist Mad Catz Interactive
The just-reported second quarter was a bit of a disaster in and of itself, mostly due to the lack of fresh music games from Activision Blizzard and Electronic Arts. The year-ago period's $0.02 net profit per share swung to a $0.01 loss per share on 31% lower sales.
The gloomy deadline-missing statements above relate to the Tritton-branded gaming headsets that Mad Catz developed for Microsoft. Five Tritton models were supposed to hit store shelves by September, but only two have actually made it to Best Buy and GameStop so far. The other three will definitely miss Black Friday and probably the entire holiday shopping season. That's gotta hurt.
To add insult to injury, Mad Catz's manufacturing partners in Shenzhen, China, are too busy making "world-class household-name audio products" for other companies to give production priority to the new Tritton stuff. So even the headset that was announced today will ship in small volumes at this critical time. "A couple of weeks' delay certainly cost you a lot on the back-end," said Richardson.
If Shenzhen doesn't ring any bells, it's the gadget-building Mecca right next to Hong Kong where outsourcing titans Nam Tai Electronics and Hon Hai Precision Industry (nee Foxconn) keep the bulk of their factories. That means competing for production resources with Sony and Apple among others. The factories would be crazy to cut back iPhone or PlayStation production for the sake of some new and unproven gaming headset for a microcap designer.
This report most certainly doesn't set the stage for a terrific 2012. Every inch of success, market position, and share gains must be won inch by inch with blood, sweat, and tears. With an Altman Z score of 1.47, the company is not in immediate danger of bankruptcy, but the balance sheet isn't exactly ironclad either.
Invest in Mad Catz only if you're ready for high risk and a bumpy ride. The payoff could be terrific from these 52-week lows, but your holdings could also end up worth a big, honking zero. Either way, you should keep a very close eye on the company. Just click here to add Mad Catz to your Foolish watchlist and you'll have all the news and analysis you need.