Preview of School Specialty: Underfollowed, Underappreciated Micro Cap

This article is authored by MOI Global instructor Patrick Retzer, founder, president and chief investment officer of Retzer Capital Management, based in Milwaukee. Patrick is an instructor at Best Ideas 2018, the fully online conference featuring more than one hundred expert instructors from the MOI Global membership community.

School Specialty filed for Chapter 11 in January 2013, largely due to a debt-financed acquisition program and dramatic cuts in school budgets resulting from the real estate crisis. Apparently, the acquisitions were not fully integrated in the whole and many inefficiencies resulted. The Company emerged from reorganization in June of 2013 and hired a new CEO in April of 2014, who brought in several new team members and embarked on a plan to make to the Company efficient and position it for growth both organically and from modest acquisitions that would leverage SCOO’s sizeable presence in the marketplace.

Over the past few years (see slides 15 and 16 in the attached Q3 investor presentation), SCOO has successfully refinanced their debt (April 2017) to reduce interest expense and provide flexibility to execute acquisitions, enhanced the IT systems and technology platform, launched Process Excellence initiatives (resulting in multi-million-dollar annual reductions in SG&A), implemented a Team-Based Selling Model and launched the 21st Century Safe School value proposition. Revenue, on a seasonally adjusted basis, troughed in 4Q2014, in fiscal 2015 SCOO saw revenue growth in 2 of 7 categories, in 2016 in 5 of 7 categories. Over the past 3 years, current management has reduced SG&A over 8%, or about $19 million while growing TTM revenue from $628 million to $661 million. Their Q3 investor presentation provides excellent insight and detail of their progress thus far. Specifically, I believe SCOO currently presents a compelling investment proposition, for the following reasons:

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