POL - Greystone Capital - Polished.Com: Anticipating A Positive Outcome

2023-05-11 22:15:00 ET

Summary

• Polished remains in the midst of their sales process.
• I’d expect to hear some progress updates by the end of Q2 if not before.
• There is concern that the company falls short of this outlook given it implies a significant pick up in the second half of 2023.

The following segment was excerpted from this fund letter.

Polished.com ( POL )

Polished remains in the midst of their sales process whereby I’d expect to hear some progress updates by the end of Q2 if not before, along with the company’s long-awaited financials that should be released around the same time. A sale of the business is not a foregone conclusion, but noteworthy steps have been taken to right-size the company on the continued path toward profitable growth. I believe there are interested parties (as was the case pre-internal investigation) that may emerge as serious bidders as management and Jefferies continue to work together to find an acquirer at an appropriate price.

In late April, the company put out a press release with sales estimates for the completed FY22, Q1’23 and management’s outlook for FY23. Despite the recent events, the press release and outlook were largely positive and provided for the first time since early 2022 a glimpse into how the business is faring.

Despite the tough macro environment, pressure on the consumer, housing related declines and notably pulled forward appliance purchase activity during the past few years, the low end of the company’s FY23 outlook would represent just a -7% sales decline, with EBITDA margins holding up well and the company remaining cash flow positive. This is about half the decline of the broader industry from Q4’22 through Q1’23.

There is concern that the company falls short of this outlook given it implies a significant pick up in the second half of 2023, but I’d imagine that their commentary was heavily lawyered and heavily scrutinized, given that after all this time, putting out a set of expectations, unprompted, that they fail to deliver on, would fall squarely outside the realm of sanity.

Furthermore, the company remains in good standing with their lender, Bank of America, and although the company’s net debt position has not been disclosed, reading between the lines, I believe prior management, in addition to their other missteps, were granted a large credit facility and used it to boost marketing spend and lever up inventory at exactly the wrong time, typical of a CEO who operated on ‘gut feel’ as opposed to using data, detailed operating procedures or supply chain management processes.

As management reduces inventory levels more in line with current demand, I suspect they will continue to pay down debt moving forward. I will continue to provide updates as they occur while I remain patient in anticipation of a positive outcome.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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