Company
U.S. Dry Cleaning Corp.
4040 Mac Arthur Blvd, Suite 305
Newport Beach, CA 92660
Phone: (949) 863-9669
www.usdrycleaning.com
Contact
Rick Johnston
Dir. of Shareholder Communications
Phone: (760) 668-1274
E-mail: rick@usdrycleaning.com
|
Share Data
Symbol: (OTCBB: UDRY)
52-Week Price Range: $0.45 - 2.00
Shares Outstanding: 29.75 million
Market Cap: $15.32 million
Balance Sheet Data
(as of June 30, 2008)
Total Assets: $22.9 million
Long-Term Debt: $15.03 million
Shareholders’ Equity: $2.7 million
Book Value per Share: $0.093
|
Using a fast-moving consolidation strategy, U.S. Dry Cleaning Corp.
achieves growth through acquisition.
Dry cleaning is one of the oldest and largest consumer services in the nation, with a 100-year history and more than 30,000 stores. Unaffected by the issues that plague many consumer operations, today’s dry cleaning industry is comprised mainly of mom-and-pop stores passed down through generations, some of which have grown into lucrative operations. “Dry cleaning has probably produced more self-made millionaires than just about any business in the nation,” says Robert Lee, CEO of Calif.-based U.S. Dry Cleaning Corp. (OTCBB: UDRY).
Lee spent much of his childhood around a local dry cleaning business, a background that’s helped him to understand the industry. He built U.S. Dry Cleaning to be a fast-moving consolidator, acquiring top performers much in the way Blockbuster bought out small video stores to grow into a market giant. In fact, before launching UDRY, Lee led the growth of Video City Inc. from an eighteen-store regional chain to one with more than 130 video rental stores in 12 states.
But unlike product-driven video stores, dry cleaners are evergreen, with a business model that safeguards them from recession, retail woes, and technological obsolescence. “The big advantage over typical retail is that there are no inventory costs,” Lee says. “With the cost of goods running at just 6%, store margins are at the very height of specialty retail or consumer services. Also, the industry has recurring revenue and is very stable because there’s no technology on the horizon that will replace it.”
A hub-and-spoke operation, UDRY provides laundry and dry cleaning services through its 60 retail stores in Hawaii, Virginia, and California. It also owns three processing plants. “Our central processing facilities average 30,000 square feet,” says Lee. “They’re fully automated and state-of-the-art, so we have assembly lines that allow for more efficiency, much higher productivity, and numerous points of inspection. In a typical dry cleaner, the garment might be inspected once or twice; in our facilities, a garment is expected six to eight times.”
The company has closed an acquisition or two every quarter in 2008. When looking for the right deal, the biggest factors are revenue, management, and market potential. “We focus only on top 100 operations that typically took about 50 years to build the dominant position,” Lee says. “We only acquire companies doing more than $5 million for initial market entry. They have to have the best management, profitable stores, and a market that can continue to grow over the next five or ten years.”
Once it acquires a chain, UDRY works to improve its operations and market position. “We don’t just buy to reduce costs,” Lee says. “We don’t make an acquisition unless we can really have a front-end driver, an incremental improvement, as well as additional growth within the market from a consolidation standpoint for further dominance. We’re looking for organic growth within each operation.” With the environmental footprint of businesses a growing concern among consumers, Lee also converts each acquisition into a “green” operation before closing the transaction.
The company is now working to enter new markets, recently expanding into Tennessee by acquiring Prestige Cleaners, a chain of nine stores and a processing plant with annual revenues around $7 million. Lee expects this acquisition to “increase [UDRY’s] operating cash flow and bring its annualized revenue run rate to over $32 million.” In September, UDRY announced that it won the bid to acquire up to 25 stores from Tuchman Cleaners, a chain that dominates the Indianapolis market with annual revenue of $7 million, bringing UDRY’s annualized run rate to almost $40 million.
According to Lee, more acquisitions will follow, and the company isn’t discouraged by a slowdown in the market. “When we first filed our IPO registration, we had 35 cents a share in revenue. As of June, we had over 80 cents a share, so even though this has been a very difficult market, we’ve done some accretive transactions,” he says. “Of course, no industry grows as much in the aggregate during a recession, but our markets are growing and our stores are growing, so we haven’t been affected by it.”
The company’s year-over-year growth was over 111% for the quarter ending June 30, 2008, with net sales growing to $5.13 million from $2.42 million for the same period in 2007. Total assets grew to $22.9 million in June 2008 from $10.6 million in June 2007 for an increase of $12.3 million.
Helping Lee achieve this growth is a management team with a track record of producing results. “Our CFO Kim Cox has an extensive consolidation background, and COO Deborah Rechnitz is the top operator in the [dry cleaning] industry, recognized throughout as a second-generation operator and a large format operator. So we’re all very well-prepared,” he says. Lee plans to spend the remainder of 2008 strengthening his executive management team and preparing for what’s next. “We really think 2009 will be our debutant year.”
The company aims to break into the mid-level markets within the next five years. “The magical point is first reaching that $50 million range,” Lee says. “Then $100 million is when we’ll have some meaningful profits. Everything we’re doing today is strengthening that foundation. We have our systems in place and they’re working well. We’re committed to continuing to grow and to really take advantage of our first market mover position.”
According to Lee, this position makes U.S. Dry Cleaning the fastest growing company in the micro-cap space. “We’re just a tremendous value,” he says. “We’re the most accretive in the class of 2007. We’re growing, we’re non-toxic, and we’ve done all of our financing through old-school, common stock financing and straight debt. We think our stock is greatly undervalued.”
RISKS: The company operates in an industry that is subject to intense competition. It also faces risks and uncertainties relating to its ability to successfully implement its business strategy. Among others, these risks include the ability to develop and sustain revenue growth; managing the expansion of its operations; competition; attracting and retaining qualified personnel; maintaining and developing new strategic relationships; the ability to anticipate and adapt to the changing markets; and any changes in government or environmental regulations.
email to a friend
digg this
del.icio.us
