Disappointing Quarter for Hirsch International

Hirsch International Corp. (HRSH) is a seller of equipment and support services to the decorated apparel industry. Its main products are a line of embroidery machines supplied to it by Tajima Industries, Ltd. They range in price from $10,000 to $150,000 each.

Hirsch International Corp. reported first quarter of 2008 (ending 3/31/2008) earnings on May 12.

Q1-2008 Earnings Recap

Revenues - $11.6 million (down 16.4% year over year)
Gross margin - 33.8%
EPS - ($0.07)
Cash - $14.7 million ($ 2.5 million restricted)
Cash per Share is $1.29 or $1.55 with restricted cash.
No debt.

Management Comments

“Results for the quarter reflect a continued challenging economic and retail environment. The general economic slowdown has impacted our customers’ buying decisions, as they are reluctant to upgrade machines and/or purchase new machines."

My Commentary

It was a disappointing quarter for Hirsch International Corp. as customers put off purchases due to concern about the economy, and they couldn't cut expenses quickly enough to make up for the revenue shortfall. Currency hurt the company as well. The company traded at $5.25 12 months ago and it has slowly descended bottoming at around $1.45. It would seem that the cash per share would provide nice downside protection, especially since there is no debt. Other things that investors should be aware of before investing in HRSH:

1) HRSH appears to be hurt by a falling dollar versus the Yen.

2) HRSH has two classes of stock and there is only one holder of the Class B shares (Henry Arnberg) – Class B holders elect 2/3’s of the Board as long as share count stays above 400,000.

3) Tajima products were 72% of revenues in 2007. The distribution agreement grants HRSH distribution rights on an exclusive basis in 39 states for the period February 21, 2004 through February 21, 2011. A separate non exclusive agreement covering 11 other states in the West expired in February 2005. Both agreements can be cancelled by Tajima under two conditions - if minimum sales quotas are not reached, or if Henry Arnberg is no longer Chairman.

Disclosure - No position.