Seeking Alpha: Summer Infant's Slow Road Back

Progress in Summer Infant's (NASDAQ:SUMR) turnaround remains slow, but there have at least been signs of progress. Revenue growth has been disappointing, but the company's core revenue continues to grow despite price reductions in the monitor line and an ongoing restructuring of the company's core product line. Likewise, the company has made meaningful progress working off obsolete inventories and reducing its working capital.

Having a bigger presence in Europe may improve Summer Infant's long-term revenue growth prospects, but it will cost money to support. Moreover, Summer Infant is still a small player in a market that includes huge retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and the Toys/Babies R Us chains and large competitors like Mattel (NASDAQ:MAT), Newell Rubbermaid (NYSE:NWL), and Dorel (OTCPK:DIIBF). While there would seem to be 25% to 50% upside from here on the basis of mid-single-digit, long-term revenue growth and low-to-mid single-digit FCF margins, the execution risk here is very high and management really needs to deliver better revenue and gross margin numbers over the next few quarters.

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Summer Infant's Slow Road Back

Seeking Alpha: Summer Infant's Recovery Story Veers Into The Bizarre

Some companies have a knack for snatching defeat from the jaws of victory. While the latest setback to Summer Infant (NASDAQ:SUMR) - a management change brought on by an apparent attempt from prior management to steal trade secrets and form a new company - is not the fault of the business, it represents yet another weird setback in a story that has seen plenty of challenges on its road back.

The resume of Summer Infant's new CEO should bring some confidence, and the company's basic plan of prioritizing new product development and margins seems sound. What's more, and as bizarre as this may sound, I think there's an argument that a new product good enough to steal probably has some above-average potential. A higher risk premium moves my target down a bit, but Summer Infant should arguably trade 50% higher than it does today.

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Summer Infant's Recovery Story Veers Into The Bizarre

Seeking Alpha: Summer Infant Looking To Transition Back To Growth

Infant products manufacturer Summer Infant (NASDAQ:SUMR) spent most of 2014 getting its house back in order. The company exited its low-margin licensing business, slashed its SKU count, restructured its product development process, as well as its sales approach, and reoriented the company around internally-driven sales and ROIC targets.

It seems premature to say "job done", but the company has definitely stabilized the business with a return to sales growth (high single-digit to low double-digit on an adjusted basis) and improving gross margins. Now it is time for management to show that it can gain share in important categories like monitors and strollers and establish a footprint in new retail channels. I'm bullish on management's plans and I believe that 2015 should see progress on internal growth initiatives. With a fair value target of almost $4 based on what I believe are relatively conservative projections, there is still credible upside to this consumer goods story.

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Summer Infant Looking To Transition Back To Growth

Seeking Alpha: Summer Infant Looking To Get Smaller, Smarter, And More Profitable

Picking Summer Infant (SUMR) as a Top Idea in mid-October of 2013 has been a boneheaded move so far, as the stock has declined about 25%. Summer Infant's share price weakness has come in response to greater-than-expected struggles to migrate away from low-margin licensed business and reduce SKU counts.

With new management in place, Summer Infant is continuing its basic strategic decision to slim down and refocus itself around a smaller number of more profitable, more competitive SKUs. This is not an unusual or uncommon phase in prior growth-by-acquisition stories, but the process can be difficult and stretch on longer than investors' patience. Summer Infant has a long way to go before it is a more credible threat to Dorel Industries (OTCPK:DIIBF), Newell Rubbermaid's (NWL) Graco, or Mattel's (MAT) Fisher-Price, but Summer Infant doesn't have to become the best to be better.

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Summer Infant Looking To Get Smaller, Smarter, And More Profitable

Seeking Alpha: Dorel Industries Trying To Ride Out A Flat Tire

Segment-leading brands don't always guarantee top-flight performance, as Canada's Dorel Industries (OTCPK:DIIBF) demonstrates. The stock hasn't been terrible, but it doesn't really stack up so well against the S&P 500 over the last one, two, and five-year periods, even though Dorel boasts significant market share in the infant/child products, bike, and ready-to-assemble furniture markets.

I wish I could see a brighter future for this company, but I have some doubts. I don't think the issues that are currently hitting the bike business are going to last forever, but this isn't a company that has done all that much from an organic growth, operating margin, or return on invested capital perspective over the past decade. The stock does seem a little undervalued today, but I can't get comfortable with the idea that it's really an outstanding performer.

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Dorel Industries Trying To Ride Out A Flat Tire

Seeking Alpha: Barely Followed, Crown Crafts Worth A Closer Look

It hasn't been a universally great time for companies dependent on the infant and juvenile products market. Mattel (MAT) has done pretty well, and Summer Infant (SUMR) is still up by double-digits, but companies like Dorel and Kid Brands (KID) have found this to be a more challenging environment as a low birth rate and a shift from many major retailers towards their own private label brands have impacted sales.

Crown Crafts (CRWS), though, has enjoyed a good run this year. Up more than 35% over the past year, the company has recently gotten a sales growth boost from new product launches, while a change in product mix has boost operating margins nicely. While the small float, low volume, and minimal sell-side coverage all mean that investors may have to exercise some patience in waiting for this idea to develop, the model and valuation look compelling today.

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Barely Followed, Crown Crafts Worth A Closer Look

Seeking Alpha: Summer Infant's Self-Improvement Could Take It A Lot Further

I approach a bullish article on Summer Infant (SUMR) with more than a little trepidation, as I have been burned by writing favorably about this name once before. I previously underestimated the serious operational challenges that the company faced after a series of debt-fueled acquisitions and the resulting missteps with new product introductions, not to mention challenges at major retailers like Toys R Us/Babies R Us and the increasing penetration of private label competition.

Even with the stock up more than 80% over the past year, I do wonder if Summer Infant is back on stronger footing and has further gains ahead of it. Management has elected to discontinue low-margin licensing arrangements, is rationalizing its SKU count, and is broadening its retailer base. What's more, it would seem that conservative estimates for revenue and cash flow (not to mention discount rate) still leave appreciation potential in excess of 40% from today's levels. It has to be noted, though, that Summer Infant is a tiny player in the baby care products market and has yet to demonstrate that it can deliver consistent organic revenue growth, let alone attractive margins or cash flow.

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Summer Infant's Self-Improvement Could Take It A Lot Further

Investopedia: Summer Infant Still Colicky

Summer Infant (Nasdaq:SUMR) could have been a really interesting growth story. There's certainly a big enough market for infant/child products, and the company's position with Toys R Us gives it a platform whereby acquiring smaller companies (especially those lacking good retail distribution) can be highly leveragable. Unfortunately, it's just not working out to plan, and I have to question whether management is being entirely candid with shareholders as to the company's real problems.

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Seeking Alpha: Summer Infant Creating A Summer Of Discontent

Experienced growth stock investors know to expect a few bumps and bruises along the way, but the lack of growth at Summer Infant (SUMR) is starting to put the company's very status as a "growth stock" in serious question. Companies with a truly standout array of products find a way to grow in even the toughest of times, and management's go-to strategy of blaming a challenging retail environment is frankly wearing thin.

I liked this stock about four months ago, and thought aggressive investors could look past some of the issues with margins, debt, and organic growth. At this point, I am wrong, Wrong, and WRONG about this stock. Although I can still see a path to better results and returns, it would frankly take a leap of faith to buy the stock here ahead of actual improvement in organic growth.

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Summer Infant Creating A Summer Of Discontent

Seeking Alpha: Summer Infant An Early Stage Growth Story

Although investment writers often seem to hate growth-by-acquisition roll-up stories, there's a reason that they keep popping up in the market – when executed properly, they can work very well. Investors can look at stories as varied as Danaher, BB&T, or Helen Of Troy (Nasdaq: HELE) and see a similar theme of success through repeated M&A activity.

It may be unfair to suggest that Summer Infant (Nasdaq: SUMR) has only grown by virtue of folding in smaller makers of kid-oriented products, but the fact remains that the company is what it is today because of deals. Looking out a few years, though, it's not too hard to see how Summer Infant can grow itself into a real contender next to Mattel's (NYSE: MAT) Fisher-Price or Newell Rubbermaid's (NYSE: NWL) Graco business. Consequently, the company's downward revision in Q4 results is upsetting, but not the end of the story.

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Summer Infant: An Early Stage Growth Story