Monday, April 22, 2013

Lot78 (LOTE) Losing Money on Expensive, Trendy Threads

The pumpers at Trinity Investment Research never let me down when I need grist for my mill.  They sent me a cute mailer touting Lot78 (LOTE), some London-based luxury clothing seller.  I really couldn't care less about trendy clothing.  I wear cheap, boring threads until they fall apart.  Hot clothing retailers don't get me excited because the brain-dead consumers who sustain them with credit card purchases will soon be up against a financial brick wall.  I have digressed.  I must discuss this stock.

Their founder and CEO has a history in high-end clothing design.  That's nice but I can't understand why a brand that has successfully placed its lines in high-end retail chains is still losing millions of dollars per year.  Their retained earnings deficit gets worse every year and they have never generated any revenue.  Their annual report from April 5, 2013 shows that their auditor has going concern doubts and that they must raise additional capital to survive.  They admit they're in serious jeopardy of running out of cash.

What's most jarring about this company isn't the financial results, but its image.  The models wearing the clothes displayed on the website look bored or irritated, as if they're uncomfortable wearing the clothes.  Contrast this with the ads from dominant U.S. retailers like Macy's, where the models are overjoyed to be pictured in their clothes.  The Lot78 clothes themselves look drab with odd placements for exterior pockets and zippers.  I get the impression that some high-end clothing lines have signature styles that say "look at me, I'm expensive."  The message I would get if I saw someone wearing this stuff is more like "look at me, I'm stupid."  

I had to convert the item prices listed on Lot78's site from British pounds to US$ to figure out how much a San Franciscan in Union Square's shops would be set back.  Today's USD/GBP is $1 / 0.65 pounds.  Trans-Atlantic pop musicians and movie stars will always "need" $85 T-shirts and $306 lounge pants but commoners on both sides of the pond are bound to get hit with another financial crisis.  Broke urbanites will do without new clothes if every spare penny must pay the rent.  I don't understand why trendies spend money on spring and summer clothes that look as drab as a basement closet, and at premium prices.  I just don't understand retail at all.  That's why I don't own this stock or anything like it.

Full disclosure:  No position in LOTE at this time.