Why The Dividend Cut Is A Positive Sign For Collectors Universe

Not often does a dividend cut act as a positive signal, but I think that is the case for Collectors Universe (Nasdaq: CLCT). The market completely disagrees, as shares tumbled nearly 40% after the company halved its dividend and reported weak Q2 results. However, if we carefully examine the quarterly and first half results as well as the rationale for the dividend cut, then I believe it is fair to say that Collectors Universe is actually in a better shape than the market is crediting. I believe shares continue to look undervalued.
Q2 results weren't great, but H1 was fine Without question, Q2 was terrible. In what is typically a fairly ho-hum business, revenue declined a whopping 21% y/y to $14.1 million, which in turn led earnings to fall to $200 thousand compared to operating income of $4.8 million in the prior year period. Adjusted for moving and lease exit costs, earnings were about $800 thousand.
China alone contributed $2.2 million or 58% of the decline in revenue. From its inception, Collectors Universe has noted that China will be cyclical and, importantly, that the Q2 period was essentially an incredibly difficult comparison due to the pent-up submissions. Year-to-date, the business in China is actually up 24% y/y to $6.3 million. Overall, this should continue to be a solid growth driver going forward, especially as the brand gains further recognition.
Importantly, the US business was also pretty poor. According to management, American Eagle Silver bullion... Read more

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