, fund manager of Chou America Mutual Funds, has for the fourth
time since October reduced his stake in Overstock.com (
). This time, he shed 3.58% of his holding, shrinking his shares
owned to 2,155,611 as of Jan. 25, according to
GuruFocus Real Time Picks
This is the most drastic cut Chou has made to the holding of his
four recent parings. The company's stock spiked 70% in the past
six months, though it has declined 5% since the year began.
Shares gained momentum in October when Overstock reported its
third quarter results, featuring a 7% year over year increase in
revenue to $255.4 million, and a 21% gross profit increase to
$46.5 million. Net income also reached $2.7 million, compared to
a $7.8 million loss the same quarter the previous year.
Overstock's revenue boost resulted from an increase in unique
visitors and average order size, though it faced challenges in
the form of fewer customer orders due to lower conversation rates
than the previous year. Revenues typically increase in the
company's fourth quarter due to holiday shopping.
Gross profit increased due to the higher revenue and an expansion
in gross margin of 220 basis points.
Overstock changed its business model in 2012 primarily in
clothing and shoes, from a direct inventory-based model to a
fulfillment partner-based model with the aim of reducing exposure
to discounts and seasonal inventory risks. The company makes the
decision to go fulfillment partner or inventory-based model based
on the economics of each product at the time.
It could face higher advertising costs in the future as Google (
) discontinued its free product listing service effective in the
fall of 2012, replacing it with a new fee-based listing service.
The amount it will increase depends on Overstock's level of
participation, if any, in the new program.
Overstock is the online retailer that sells closeout merchandise
at discounts, based in Salt Lake City Utah and founded in 1997.
In addition to products, it sells cars, insurance, travel
accommodations, other services and advertising.
Though the third quarter marked the third in a row in which
Overstock made net earnings, it was unprofitable by $19.44
million in 2011, and aside from 2009 and 2008, has not been
profitable any other year of the past decade.
It has generated free cash flow for about half of the past 10
years and struggled to raise revenue: In 2011 it fell to $1.054
billion from $1.09 billion the previous year. The company has
$86.5 million in cash, zero long-term debt, and $2.77 million in
Currently, it trades for a 136.9 P/E, 15.6 P/B and 0.311 P/S,
which approaches a one-year high.
In August, Chou remarked in his semi-annual letter that though
Overstock was one of his top decliners in the first half of 2012,
"In equities, we believe the financial and retail sectors are
undervalued and have invested in them using a basket approach
rather than concentrating on one or two stocks in either sector."
Other stocks in his retail basket include The Gap (
), RadioShack (
), Office Depot (
) and Sears Holdings Corp. (
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