December 16, 2005

On November 22nd, 2005, S&K Famous Brands (SKFB) announced third quarter results. Net income for the first nine months of 2005 increased 30% to $2.4 million or $0.93 per share compared to $1.8 million or $0.69 per share for the same period last year. Despite a difficult retailing environment, same store sales for the period increased 4.7% over last year. SKFB’s balance sheet ended the quarter in good shape. As of the end of October, the company had long term debt of only $8.5 million and shareholder’s equity of $52.8 million. It should be pointed out that SKFB continues to repurchase its own shares in the market. The company now has less than 2.4 million shares outstanding. Management owns over 30% of this amount which leaves just 1.7 million shares in the public float.

While SKFB continues to post good results, its remains overlooked and undervalued. At its current price of $18 per share, shares of SKFB are trading at an 18% discount to its book value of $22.07 per share. Moreover, given the company’s low stock market valuation, high insider ownership, and lack of Wall Street coverage, we believe the best course of action for management would be to purchase the remaining public shares and take the company private.

April 21, 2006

On March 28th, we were pleased to learn that S&K Famous Brands, announced that it would pay a special dividend of $6.00 per share. Steward Kasen, CEO of S&K, commented “this is the only time that we have paid a dividend since going public in 1983. We are pleased that our continued strong financial results have enabled this additional return to our shareholders, which we believe may assist in improving our return on equity.”

The dividend comes less than a month after the company reported strong year end results. For the fiscal year ended 2006, S&K’s earnings per share increased 25% to $1.49 per share from $1.19 a year ago. In addition, the company ended the year with no debt and a book value per share of $22.35. After adjusting for the dividend, we estimate S&K’s new book value per share is around $16.35. With the shares currently trading at $13.30, it appears the stock is still overlooked and undervalued. Further, given that the company’s low stock market valuation, high insider ownership, and lack of Wall street coverage, we continue to believe the best course of action is for management to take the company private.

April 20, 2007

Since paying a $6 per share special dividend last May, S&K Famous Brands (S&K) has seen its public market value shrink to less than $30 million. Trading in the stock, which moved to the pink sheets in March 2005, remains highly illiquid. In February, S&K reported excellent fourth quarter results at its S&K Menswear stores. Earnings increased 32% from $.54 to $.87 per share. Unfortunately, nobody seemed to care - the stock barely moved. Today shares of S&K are trading at a 52 week low. Given its micro-cap size, lack of trading volume, and apparent investor indifference, we believe management should consider taking the company private.

How would it be done? S&K insiders already own 25% of the company so they would only need to finance the remaining 1.75 million shares owned by the public. Given S&K’s current debt free status, we estimate that it would require between $30 and $35 million in debt. At today’s low rates, interest charges would be no greater than $2.5 million a year. This is certainly manageable given that S&K’s EBITDA has averaged around $9 million annually over the last three years. Given these assumptions, management would earn a sufficient return to justify taking it private. At a fair privatization price, to both the company and S&K investors, this event would be a win-win for all. From the company’s point of view it would eliminate the cost of remaining a public corporation as well as the stringent Sarbanes-Oxley business restrictions. As for the public shareholders, a cash takeout offer would provide valuable liquidity and an opportunity to move onto another investment.

January 4, 2008

On November 27th, S&K Famous Brands (SKFB) reported third quarter results. Sales decreased 12.5% to $35.8 million compared to sales of $40.9 million in the third quarter of 2006. Meanwhile, gross margin improved to 48.4% of sales, a 300 basis point improvement over the third quarter of 2006. Unfortunately, the improvement in gross margin was not enough to offset the lower sales volume. As a result, SKFB reported a loss of $1.8 million or $0.81 per share compared to a loss of $0.6 million or $0.28 per share in the third quarter of 2006. It is important to remember however, that Q3 is a seasonally weak quarter for SKFB with a large proportion of the annual profits coming in the fourth quarter.

Nevertheless, SKFB’s balance sheet remains strong. Inventories declined 9% year over year to $49 million and long term debt fell 15% to $15.4 million. Tangible book value per share fell slightly to $16.25, but is still considerably higher than the current share price of just $7. In fact, given the company’s micro-cap size, lack of trading volume, and substantial public market valuation discount to net asset value, we believe management should consider taking the company private.

S&K insiders currently own 40% of the company so they would only need to finance the remaining 1.3 million shares owned by the public. We estimate this would require an additional $15 to $25 million in debt. Interest charges would therefore be no greater than $3 million a year. We believe this is manageable given that S&K’s EBITDA has averaged around $7.2 million over the last 12 months and over $9 million annually in the last three years. Given these assumptions, management would earn a sufficient return to justify taking it private. At a fair privatization price, to both the company and S&K investors, this event would be a win-win for all. From the company’s point of view it would eliminate the cost of remaining a public corporation as well as the stringent Sarbanes-Oxley business restrictions. As for the public shareholders, a cash takeout offer would provide valuable liquidity and an opportunity to move onto another investment.