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ROBERT M. BUDD - NEXT, INC. (NXTI)
CEO Interview - published 09/17/2007
ROBERT M. BUDD is President and Chief Executive Officer of Next, Inc. Over the
last 30 years he has held various senior level executive positions in both
public and private companies. In addition, he has owned and been a partner in
several very successful businesses.
SECTOR APPAREL
TWST: We'd like to begin with a brief historical sketch of the company and a
picture of the things you're doing at the present time.
Mr. Budd We've been in business since 1988 in the licensed sportswear and
promotional products business. We service virtually all of the mid-tier and mass
retailers in the United States. We're primarily involved with licensed products
that we've either embellished domestically or imported. Basically, we are
dealing with 200 different college licenses as well as the licensed products for
Ford, Chevy, Dodge, Pontiac and Hummer in addition to other specialty licenses.
TWST: What is the competitive landscape like?
Mr. Budd: Our industry and our business is no different from any industry today;
it's a global and competitive marketplace. We're competing for purchasing
dollars at all of our various customers. The two primary keys to success are
service and check-through at the register. We have been very successful in
accomplishing both of these key objectives. On the service side, our
manufacturing capability allows us to service our customers' needs very quickly.
We can oftentimes turn orders around and ship substantial quantities in seven to
10 days. This also allows us to service our customers business so they can take
advantage of hot selling programs. It also allows us better control of the
quality and accuracy of our products. Our customers can count on us to be able
turn orders quickly.
TWST: Would you tell us about the challenges you are facing and what you are
doing to address those challenges?
Mr. Budd Our biggest challenge is that we do approximately 70% to 80% of our
business over the last six months of the year. Back to school and holiday are
the busiest times of the year for retail. Naturally, that will be our busiest
time of the year as well. This is compounded to some degree by the fact that we
are so involved in college sports and the biggest college sport is football. We
are focused on developing more business during the first half of the year.
TWST How are you addressing this issue?
We are tackling this challenge from a three-pronged approach. We initiated a
spring line in 2006. We received minimal orders that first year. We stuck with
it and our 2007 line has been very well received and we are booking some pretty
solid business for spring 2008 deliveries. We are also developing product lines
outside of the our core men's business, as well as seeking both licensed and
non-license opportunities that are inherently more spring oriented
TWST: What will be the single biggest opportunity in front of you?
Mr. Budd: Becoming a strategic partner with every one of our existing and
future customers. The college-licensed business is one of the most complex
businesses to execute in the apparel industry. Just think about providing an
array of product for 200 college institutions with five designs that need to be
distributed across the entire country. This challenge would leave most folks
involved in traditional retail businesses perplexed. I am proud to say we are
very good at it. Anybody can peddle college product. Knowing what teams to put
where and in what quantities is what makes us a great strategic partner for our
retail customers and our licensors.
TWST: Who are some of your principal customers?
Mr. Budd: JC Penney's, Kohl's, Kmart, Cracker Barrel, Academy and Dillard's to
name a few.
TWST: What are your thoughts on acquisitions and mergers?
Mr. Budd: This industry is still very fragmented. We believe that makes it ripe
for opportunistic consolidation. We've targeted three or four opportunities that
we'd like to look at over the next 12 to 24 months. We see excellent synergies
in terms of distribution, expansion and consolidation of back-office functions,
thereby providing greater value for our shareholders and our customers.
TWST: What problems or challenges do you foresee, if any, for the industry and
for your company in particular?
Mr. Budd: We need to continually be working on our supply chain. We are not and
do not want to be the low price provider in our space. As such, we have to
continue to deliver high value products on time at a competitive price. Having
the proper supply chain in place will allow us to continue to deliver great
service to our customers.
TWST: I would guess that the barriers to entry in your business are not very
high.
Mr. Budd: I think that's a common misconception. It's actually a fairly
difficult business to get into. First of all, it's hard to get licenses, because
licensors are looking not to license just anyone anymore. Most licensors,
particularly colleges, are looking to reduce the number of licensees. There will
be fewer licensees but the licensees that are there will be very strong and
capable of product development, distribution and value creation in the
marketplace. Today, the retail market in general is trying to reduce the number
of vendors versus expanding them, so a new vendor coming on stream that's not
presently in the channel of distribution will have a very hard time getting a
new vendor number. Our strategic approach to the market coupled with our ability
to execute both import and domestic programs really set us apart from our
competition.
TWST: What about competition? How difficult is barrier to entry, obtaining
license programs? What is your experience in this industry?
Mr. Budd: Barrier to entry is quite difficult. To enter this market you must
have the financing to guarantee royalty payments to licensors, you must have
already established retail distribution channels, the company must have an
infrastructure that can support financing, design capabilities, market and
selling teams available to execute, and the most important is have a company
with sound management experience and relationships within the industry.
TWST: Would you tell us more about your license portfolio?
Mr. Budd: We have spent the past couple of years whittling down our license
portfolio. The licenses that we currently have are excellent core licenses that
will be around for many years to come and will sell day in and day out. We are
presently looking for new opportunities that we expect will help us to diversify
to some degree but, more importantly, increase our spring and summer sales.
TWST: What is your strategy for the next few years?
Mr. Budd: Our initial strategy was the immediate turnaround of the company
resulting in sustainable profitability. At this point, we have literally
retooled the entire company's operations building a stronger foundation for
future growth. The next step is to pursue calculated and consistent growth
while continuing to drive more meaningful earnings to the bottom line. We have a
great team, led by virtually all new management, all here for the sole purpose
of reaching these common goals. Our new sales team has made numerous inroads
that we expect will pay dividends for many years to come. We have a great team
of individuals who are extremely passionate and committed to the success of our
business. We are well positioned to take advantage of current and future changes
that will occur in our present markets.
TWST: Would you tell us about the background, the expertise and the
responsibilities of a couple of the key members of the management team?
Mr. Budd: We just brought in a new CFO, David Cole, in March. Dave has been a
great addition to our team. Dave has a strong background in public company
accounting for manufacturing companies. Rick Talbert joined the Next team in
November of 2005 shortly before I joined. Rick was responsible for developing
our supply chain during 2006. He recently took over production and has been the
primary driver behind our improved conversion margin. Joe Ferragina and Ross
Litz were brought on board back in May of 2006 to head up our sales marketing
and merchandising efforts for the company. They have been instrumental in
developing and implementing our strategic sales focus. We have assembled a great
team here at Next. Each and every employee is committed to delivering excellent
customer service. This commitment is proving to be one of the keys to our
ability to maintain and grow our current customers as well as securing new
customers.
TWST: How many employees do you have?
Mr. Budd: We flex our employee roles seasonally, but it runs between 100 and 120
employees.
TWST: What would be the two or three reasons for a long-term investor to take a
good look at the company?
Mr. Budd: We have an experienced management team with a proven record of
success. We're seasoned veterans and we've experienced the ups and downs of this
industry many times during our careers. We believe there are tremendous growth
opportunities in addition to numerous excellent potential accretive
acquisitions. We are clearly committed to increasing shareholder value. From an
operations point of view, we have tremendous earnings leverage.
TWST: Do you feel that you can substantially increase revenues without having to
increase the size of your staff?
Mr. Budd: No question. I think we have the staff and infrastructure to be able
to accommodate about $50 million in revenue versus the $26 million we did last
year. The gross margins on the next $34 million in annual revenue will largely
go straight to the bottom line, so our profits should grow dramatically as
revenue increases.
TWST: As CEO, what occupies most of your own attention?
Mr. Budd: When I first got involved with Next, I spent time in virtually every
aspect of the business, from sourcing, manufacturing, customer service, licensor
relations - pretty much the whole gamut. Now that things have settled in for the
most part, I spend the majority of my time on business development, both current
and future as well as licensor relations.
TWST: Is there anything you'd like to add regarding the company's long-term
objective and vision?
Mr. Budd: We are profitable, experienced, have a track record of success and the
infrastructure in place to grow revenue significantly. Growth for the sake of
top-line growth just does not make sense. We need to build our business by
identifying areas of opportunity where we can leverage our existing distribution
channels while at the same time looking for opportunities to diversify - all of
which need to be done profitably.
TWST: Thank you. (MC)
ROBERT M. BUDD
President & CEO
Next, Inc.
7625 Hamilton Park Drive
Suite 12
Chattanooga, TN 37421
(423) 296-8213
www.nextinc.net
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