Blair Corporation (BL)

1
Blair Corporation (BL)
Wednesday October 4, 2006
2
Blair Corporation

• Index AMEX
• Sector Services
• Industry Catalog and Mail Order Consumer
  Products
• Employees 1,900
• Senior Management 10 members
• Board of Directors 9 members

3
Company Overview

• Product categories
• Womenswear
• Coordinates, dresses, tops, pants, skirts,
  lingerie, sportswear, suits, jackets, outerwear
  and shoes
• Menswear
• Suits, shirts, outerwear, active wear, slacks,
  shoes, and accessories
• Home merchandise
• Bedspread ensembles, draperies, furniture covers,
  area rugs, bath accessories, kitchenware, gifts,
  collectibles and personal care items

4
Company Overview

• Markets/Sells product(s)
• Direct mail
• 81 of total sales
• E-Commerce launched in 2000
• 18 of total sales
• Three Retail Stores
• 1 of total sales
• Two in Pennsylvania
• One in Delaware

5
Company Overview

• Targets customers in low to moderate income range
  
• 40,000-75,000 annual income
• Offers exclusive Blair credit card
• Suppliers outside United States account for
  roughly 32 of companys merchandise (expanding)
• Properties consist of HQ, 2 distribution centers,
  4 warehouses all located in PA. 4 'call
  centers'.

6
Company Overview
Note Product Mix largely unchanged over past 5
years
7
Major Risks to Business

• Significant increases in the costs associated
  with its direct mail business could negatively
  affect results of operations
• Consumer concerns about purchasing items via the
  Internet as well as external or internal
  infrastructure system failures could negatively
  impact e-commerce sales and costs
• The Companys increasing reliance on direct
  sourcing from foreign vendors may negatively
  impact the cost to source and deliver merchandise
  
• New management of Blair credit operations may
  impose more strict credit guidelines, which may
  have a negative impact on sales.

8
Competitors

• Competition consists of discount retailers and
  other retail catalog businesses
• Major competitive advantage Discounted prices,
  and competitive credit program.

9
Senior Management

• John E. Zawacki, President and CEO
• 1971 graduate of Thiel College, Greenville, PA
• Began employment with Blair Corporation in 1972
• Assistant Vice President of Womenswear 1977-1988
• Vice President of Womenswear 1988-1999
• President and CEO 1999-Present

10
Senior Management (cont.)

• Larry J. Pitorak, of Tatum Partners, interim
  Chief Financial Officer (CFO)
• 1969 graduate of Thiel College, Greenville, PA
• 1974 graduate of Cleveland State University
  Marshall
• College of Law
• CPA Tatum Partner since 2002
• Previous employment
• 28 years with The Sherwin-Williams Company,
  Cleveland, Ohio includes
• Chief Financial Officer, Senior Vice
  President-Finance and Treasurer 1991-2001

11
Senior Management (cont.)

• David N. Elliott, Senior Vice President,
  Merchandising and Design
• 1976 graduate of the University of Toronto
• 1978 graduate of Harvard Graduate School of
  Business (MBA)
• Began employment with Blair Corporation in 2004
• Previous employment
• 9 years with Petals, In., Tarrytown, NY
• Executive Vice President, Merchandising and
  Product Development 1994-2003
• Ross Simons, Cranston, RI
• Vice President and General Merchandising Manager
  2003-2004

12
High Level Financial Information

• Stock Price 25.80
• P/E 5.72
• EPS 4.51
• Current Ratio 2.25
• Quick Ratio 0.89
• ROE 6.0
• ROA 4.8
• Total Liabilities as of Equity 52.8
• 2005 Year End Data
• Net Sales 456 mln
• Net Income 31.5 mln

13
Investment PROS

• Strong Liquidity Position
• 5 yr avg Quick Ratio of 2.19
• 2005 Quick ratio is 0.88 add 75mln available
  credit for ratio of 2.07
• Very Little Debt
• Virtually no Long Term (LT) Debt
• 2005 Debt/Equity (DE) is 53 -- historically
  below 35

14
Investment PROS

• Low capital investment requirements
• Growth of international sourcing may further
  reduce future costs
• Focusing on Core Business
• Shed Alleghney Wholesale business / Crossing
  Pointe
• Sold receivables for 28mln gain
• Simple/Predictable business

15
Investment CONS

• Loss of 30 mln per year revenue stream from
  credit programs (valuation effect)
• Increasing costs
• advertising/paper/ink
• Sales declined at 5 yr CAGR of 5
• 61.4 mln in returns in 2005
• 14 of net sales

16
Investment CONS

• Blair rejected 297mln (36/share) offer to buy
  the business.
• Instead bought back over 50 of shares
  outstanding for 42/share shares subsequently
  lost half their value
• Investor group entered standstill agreement

17
Investment CONS

• Valuation

18
Major Risks to Valuation

• Sales Growth
• Benefits from advertising
• Negative effect of new credit program
• Cost Margins
• Cost of paper/ink
• Effectiveness of advertising
• Cost benefits from sale of receivables

19
Conclusion

• An investment in Blair Corp is not attractive at
  the current market price.