JLM Couture Stock Analysis by Evan Bleker January 22 nd, 2015.

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1 Summary Name: JLM Couture Country: USA Symbol: JLMC JLM Couture Stock Analysis by Evan Bleker January 22 nd, Share Price: $2.65 NCAV/Share: $4.50 Current Discount: 41.3% Market Cap: $4.75 Million Net Cash per Share: N/A Price/Net Cash: N/A Debt to Equity: 1.5% Current Ratio: 2.94x Burn Rate YoY: 7.8% decr Burn Rate QoQ: 1.8% decr Business JLM Couture is a designer and retailor of bridal wear, primarily wedding dresses and bridesmaid gowns. The company only has two wholly owned retail locations, both located in Hollywood, so distributes its products through a network of 600 US and 200 European bridal stores. The company itself consists of three subsidiaries, JLM North America, JLM Europe, & Alvina Valenta, and is headed by its cofounder Joseph Murphy. JLM dates back to 1988, when Murphy, then experienced with micro cap financing and becoming more interested in the high-end fashion market saw an opportunity in bridal wear. Murphy became controlling shareholder in 1994.

2 There is very little information available about JLM Couture. The company went public in 1994, but stopped filing financial statements and other shareholder documents by The company began publishing public documents again in These new reports include financials from 2008 to I consider reports published before 2008 mostly irrelevant, so this analysis primarily focuses on the firm s more recent company filings. These filings paint a rather mixed picture, which I ll try to describe below. Net Net Hunter Investment Scorecard Not Chinese Pass This company has no operations in China that I know of. While some items may be produced there, this is not enough to eliminate the company from contention. Low Price to NCAV Pass The company currently trades at a 41% discount to NCAV, or a Price to NCAV ratio of 58.9%. This is fairly cheap. Low Debt to Equity Pass JLM has virtually no debt. In fact, the highest Debt to Equity figure the firm wracked up over the last 5 years was in 2012, when it recorded a 4.2% Debt to Equity ratio. The company current ratio sits at just 1.5%. Adequate Past Earnings or Catalyst Fail Unfortunately, the highest net margin the firm recorded over the previous 5 years was just 2.1%, in This was also aided by a significantly smaller tax bill of just 16.5% of EBIT. Since 2008, JLM Couture s business has barely turned a profit. The largest sign that the firm is in the process of turning things around is seen through top-line revenue growth since its devastating 2009 performance. Take a look: Year End Oct Oct Oct 31, 11 Oct 31, 10 Oct 31, 09 Oct 31, 08 Revenue M M M M M M

3 Net Profit 93th 582th 300th (500th) (638th) 93th Margin % 0.30% 2.10% 1.20% -2.40% -3.23% 0.37% For the most recent 9 month results ending July 31 st, 2014, net income is well below the previous year $ versus $ USD. Past Price Above NCAV Fail Unfortunately, JLM s Price to NCAV has been supernaturally low for the past 5 years. Year End Oct Oct Oct 31, 11 Oct 31, 10 Oct 31, 09 Oct 31, 08 P/NCAV 55.5% 29.5% 27.3% 33.6% 27.4% 29% Existing Operations or Liquidation Pass With revenue of $29 million USD, the firm has significant and growing operations. Large Current Ratio Pass From a high of 6.5x in 2008, JLM s current ratio has steadily fallen to a still meaty 2.94x. This is still a very good figure. Small Market Cap Pass The company has a market capitalization of just $4.75 million USD, which is very small. Low Price to Net Cash Fail JLM Couture does not have net cash. It does, however, have a significant amount of cash on its books. Current cash is enough to cover 40% of its total liabilities. Financial/Regulated/ADR/Real Estate/Closed Fund Pass The firm does not fit any of these categories. Company is Buying Back Stock Fail

4 The company bought back stock in 2010 and 2011, but has not bought back stock since. The fact that the company bought back stock in 2010 and 2011 is a very positive sign and is consistent with a management team that s interested in boosting shareholder value. In 2010 and 2011, the firm was trading at only 33.6% and 27.3% of NCAV. Purchases made during that time were highly accretive to remaining shareholders. For $1 dollar spent, remaining shareholders received $3 in value. Unfortunately, while further buybacks would still be significantly beneficial to remaining shareholders, the company hasn t repurchased shares since at least October 31 st, Insider Ownership N/A There is no current information on insider ownership. Joseph Murphy, the firm s CEO/CFO and cofounder was once reported to be majority shareholder meaning he owned a major block of shares but that was 10 years ago now. 10 years is plenty of time to liquidate a position. As it stands, I suspect he still owns a large block of shares but I have no evidence for or against this. Insider Buys/Sells N/A No recent information exists. Burn Rate Low or Positive Pass JLM Couture has a very stable NCAV, dropping only 9.7% since it s high of $8.96million in What s more, there is very little fluctuation in the company s NCAV year to year. Catalyst Fail There is no significant catalyst on the horizon. Insider Pay N/A In a note in the firm s 2013 annual report, management mentions that the firm expects to pay $ USD in salaries to management and directors until Assuming a 3 year period, that would put management and director salaries at $ USD per year. Google Finance lists 6 people who make up the company s upper management and board of directors, which would place salaries right around $ per year on average. I don t think that either the chairman or Murphy are accepting salaries this low

5 but, on the surface, salaries seem very reasonable. Even if my 3 year assumption is wrong, and the figure only covered 2 years, average pay would still only come in at $ USD per person. Business Problem or Reason for Undervaluation Unfortunately, the firm does not provide any information on business performance. There are no management discussions or anything else to get a sense of the company s current situation. Having said that, I assume that the company has been hammered by the 2009 crisis, and the remaining weakness in employment. While sales have grown, the average selling price could have dropped, putting pressure on margins. Of course, this is only speculation but a large drop in the firm s fiscal 2010 gross margins, followed by a quick rebound in fiscal 2011 and small, steady, drops up to and including fiscal 2013 lends support to this theory. Attempts to Address the Problem There is no information about this. Other Factors JLM Couture has a small number of options out which may dilute shareholders somewhat, and the company has grown its book value by a very small amount over the past three years. Valuation Valuation comes in at $4.50 per share, which excludes the firm s very modest tax asset. Some investors will want to discount each current asset account to more accurately reflect its liquidation value but that s not my style of investing. The firms I buy rarely liquidate, and I demand a very large discount to NCAV to boost downside protection. JLM Couture is no different. I assess the probability of the firm liquidating to be very low since management has been able to squeak out a profit and the company certainly seems viable. Conclusion

6 I m agnostic about whether management will improve business results, however, the stock price would definitely follow growth in profits. As it stands, the business shows mixed results and has failed to record a price above NCAV within the last 5 or 6 years, and an adequate net profit margin over the same amount of time. While I would give the company a pass if it had also been growing its earnings and/or NCAV by an acceptable amount over the last few years, this hasn t happened. In fact, the firm s NCAV has fallen steadily since This is not a recipe for an outstanding investment opportunity. To consider this company for my own fairly concentrated net net stock portfolio, I d demand a price below 50% of NCAV to compensate for the risk of the company maintaining its net net stock status well into the future. That s not to say that the stock won t recover back up to NCAV it very well could but I m sure there are better buys out there. If it sinks below 50% of NCAV, I ll take another look. For well-diversified portfolios, JLM Couture is a very conservatively financed and stable net net stock opportunity that trades at a large discount to NCAV. For these reasons, it probably deserves a small investment. Disclaimer I am not a financial advisor nor is Net Net Hunter a broker dealer. The above does not constitute advice to buy or sell a security. It s is only intended to offer an alternative view point that you can take into consideration after you conduct your own detailed analysis. No matter what s said above, remember that you re ultimately responsible for whether you decided to buy or sell this security. If you choose to buy or sell the above security you do so at your own risk based on your own analysis and judgement.