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NIKE, Inc. (NKE), K Swiss Inc (KSWS): Is This Shoemaker Selling Shareholders Short?

Iconic shoemaker K Swiss Inc (NASDAQ:KSWS) received a takeover bid in mid-January after the company failed to achieve profitability since 2008 and was seemingly dwindling out of existence. The proposed buyer is South Korean retail firm E.Land, which offered $4.75 per share, valuing the company at $170 million. As is happening more and more often these days, shareholders were quick to dispute, with activist shareholders alleging the company is worth north of the offer price, even though it was a 50% premium to the then-price. Now, lawsuits are in motion and analysts are number-crunching, trying to figure out if the beleaguered sneaker maker is indeed undervalued at $4.75 per share. Using some fundamental analysis and comps, let’s see if we can determine a value for K Swiss Inc (NASDAQ:KSWS).

NIKE, Inc. (NYSE:NKE)Deep(est) value
During the recession, revenue predictably crashed for a premium-branded shoe and sports apparel company. But falling sales alone were not the only factor to bury the company. It turns out another major factor, as pointed out in a Fool blog post, was skyrocketing SG&A costs. In its most recent year, SG&A accounted for 48.4% of sales. The year before, it was 57.3%.

In 2012, numbers crashed across the board. In the fourth quarter alone, the company posted a net loss of more than $14 million, or $0.41 per share. This was favorable to the prior year’s quarter, in which the company lost $0.71 per share. Worldwide revenue dipped nearly 18%, while domestic revenue was down 31.4%.

For the year, the company posted a net loss of $34.8 million, or $0.91 per share. That represents nearly 20% of the company’s market value today. Overall, the U.S. was the biggest drag on performance, crashing 35% in revenue compared with just 3% internationally on an annual basis.

The one bright spot for the company was future orders, which ticked up 1.3% compared with the year-ago for shipments taking place between January and June of this year.

Given the dismal income statements over the past few years (which, at this point, we can infer is likely due to general mismanagement, as the brand itself is quite valuable and should be a profitable platform), the appeal of the company must lie in its balance sheet and, of course, its brand. Sure enough, for all of its misgivings, K Swiss Inc (NASDAQ:KSWS) does have a strong-looking balance sheet. The company has $141 million in cash and just $1.3 million in current and long-term debt. Inventory is high at nearly $70 million in the latest quarter, but it has ticked down from higher levels in previous years.

Using $170 million as our valuation, how does K-Swiss compare with its competitors?

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