I stayed up way after my bedtime on Tuesday night to watch the Profit on CNBC for an episode on a queens, NY Embroidery and screenprinting company. The owner Sal had enjoyed some success and then made a leap to diversify and re-invigorate his business by adding sports venues and a restaurant. That was a bad idea because they both didn’t increase sales to the primary business of decorating clothing with corporate logos. In fact, they stated the company did $2mm in sales and i find that hard to believe given the amount of equipment shown during the show. We have 3-4x the amount of embroidery machinery and do contract embroidery for professional promotional product distributors on top of our direct business and only do $3.5mm+ in sales. The other surprising number was their quoted gross margin of $900K. From an accounting perspective that is correct but in our business there is an inordinate amount of work needed to transform the product (embroidering or printing a garment) into a salable product. You can’t compare that to a retail scenario where there’s one shopkeeper. Basically, the direct labor expense for decorating the product should almost be included in the Cost of Goods Sold in our business to give an accurate portrayal to other businesses.
Nevertheless, it was a great show and I love the spin of an investor coming into a failing business versus pitching their new business idea to the Sharks. Check it out sometime: Tuesday nights at 10pm on CNBC. http://www.cnbcprime.com/the-profit/