The Bear Cave #134

New Activist Reports, Recent Resignations, and Tweets of the Week

Sep 11, 2022

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New Activist Reports

Spruce Point Capital published on Figs Inc (NYSE: FIGS — $1.99 billion), a company that makes fashionable medical scrubs. In its 113-slide report, Spruce Point alleged the company has “a pattern of exaggerating key business and financial claims.” For example, the company claims to have a ~$12 billion total addressable market, but Spruce Point estimates its total addressable market is only ~$5 billion. Spruce Point also said it “believes FIGS was a COVID-19 beneficiary that will fail to sustain momentum due to demand normalization and increasing competition.” In addition, Spruce Point published concerning comments by former Figs Inc employees:

“There is just something that is off about the place… Unethical is a word I'd use to describe the actions here.”

“It’s a culture of fear …”

“With my insight into leadership, it's easy to see rampant favoritism, unethical behavior and excessive micromanaging starting at the top with founders.”

“Understand that the founders will stop at nothing to succeed and that means lying to press, vendors, employees and Glassdoor.”

“I would say that if there is a number where there's an opportunity to kind of be aggressive with something, they probably will be.”

The company is down ~65% since its May 2021 IPO.

OSS Research published on AirBoss of America (Toronto: BOS — CAD$348 million), a Canadian industrial rubber products manufacturer. OSS Research said AirBoss benefited from pandemic-era, non-competitive PPE contracts that will become more competitive going forward. OSS Research also noted that FedEx recently sued the company for $27 million in unpaid ocean freight after the company’s nitrile gloves were seized by the U.S. Customs and Border Patrol on allegations a supplier was using forced labor. OSS Research concluded,

“AirBoss has a spotty track record that we believe will likely adversely impact their chances on winning other contracts and lead to potential legal settlements and inventory write-downs. We see ~50% downside in the stock and potential financial covenant issues.”

Peek Behind the Numbers published on Mohawk Industries (NYSE: MHK — $7.22 billion), a manufacturer of flooring products. Peek Behind the Numbers highlighted irregularities in the company’s accounting that may have contributed to a recent earnings beat. For example, Mohawk Industries lowered its warranty reserves from 1.6% of sales in October 2021 to 1.3% in July 2022. In addition, the company’s allowance for “discounts, claims, and doubtful accounts” fell from 4.3% of receivables in October 2021 to 3.7% in July 2022, the lowest allowance percentage in its last sixteen quarters.

Recent Resignations

Notable executive departures disclosed in the past week include:

CEO of ContextLogic (NASDAQ: WISH — $864 million) departed after just eight months. The company’s Chief Technology Officer departed in August, the Executive Chairman resigned in February, and the company’s CFO departed in July 2021. The company is down ~95% since its December 2020 IPO.
CFO of Children's Place (NASDAQ: PLCE — $534 million) is leaving the company after one and a half years. The company’s Chief Operating Officer also retired in June.
CFO of Lightning eMotors (NYSE: ZEV — $169 million) is “retiring” after a little less than two years. The company is down ~80% since its November 2020 SPAC merger.
CEO of Cantaloupe (NASDAQ: CTLP — $361 million) “announced his retirement and resigned” after about two and a half years. The company has had four different CEOs and six different CFOs in the last five years.
General Counsel of Sotera Health (NASDAQ: SHC — $4.43 billion) resigned after just eleven months. The company’s CFO also resigned in July and the company is down ~40% since its November 2020 IPO.
General Counsel of Leafly Holdings (NASDAQ: LFLY — $60 million) resigned “effective immediately” after one year. The company is down ~85% since its January 2022 SPAC merger.
The Chief Legal Officer and four board members of Lottery Inc (NASDAQ: LTRY — $16 million) all resigned and “the size of the Board will be reduced from five members to one member.” The company is down over 95% since its November 2021 SPAC merger and The Bear Cave previously criticized the company for running an affiliated charity that paid “a fee from the gross donations” to the company. The company said it “is working diligently to identify and appoint new independent directors as soon as practicable.”

Data for this section is provided by VerityData from VerityPlatform.com

What to Read

“SEC Charges Archer Capital Management Group, the Archer Growth Fund and Related Entities with Defrauding Investors” (SEC)

“To induce investment in the Archer Growth Fund, the defendants falsely claimed on their website, among other misrepresentations, that the Archer Fund had an annual rate of return of 47%, that it had beaten the Russell Growth Index for five straight years, and that it was ‘one of the only High-Watermark Funds available on the market.’ The SEC also alleges these claims were false. Indeed, the SEC alleges there was no Archer Growth Fund. Investor funds were never invested as promised but instead, the SEC alleges that investor funds were misappropriated by the individuals who orchestrated the scheme for their personal use and to perpetuate the fraud.”

“Anti-ESG Activist Investor Urges Chevron to Increase Oil Production” (WSJ)

“Vivek Ramaswamy, who launched an energy-focused exchange-traded fund nearly a month ago, is among the most prominent critics of so-called environmental, social and governance—or ESG—investing. He quickly turned his sights on Chevron, arguing the country’s second-biggest fossil-fuel company should slow spending on its energy-transition plan, which he said was partially motivated by pressure from top shareholders such as BlackRock Inc.”

“Inside Bed Bath & Beyond, Concerns Over Mounting Stress for CFO” (WSJ)

“Mr. Arnal grew up in Venezuela. His family was relatively poor and, at around 18 years old, he started importing trucks and selling them to locals at a profit, according to Mr. Zijderveld. He used the proceeds to pay for college, he said. Mr. Arnal got an undergraduate degree in mechanical engineering and a masters in finance from universities in Venezuela, according to his LinkedIn profile, and then joined P&G. At P&G, he was known as a demanding boss with high standards and integrity…”