Trying to Keep Up With Action's Changing Performance

Also, a note from the fair-and-equal-treatment department.
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Can't help wonder what's really going on at

Action Performance

(ACTN)

, which makes model cars for

Nascar

racing enthusiasts, and with the imminent spinoff/IPO of its

goracing.com

sub. Our story starts June 23, when

Dow Jones

ran a story about how Action's stock had tumbled after rival

Racing Champions

(RACN)

warned that its growth had hit a speed bump. The story quoted Action CEO Fred Wagenhals as boasting that Action had met or beaten earnings estimates for the past 22 straight quarters, and was on target to do the same in the upcoming June quarter.

No reason not to believe him; he's the boss and the quarter was almost over. So you would think. But the very next day -- buried in the third paragraph of a press release to announce the IPO of goracing.com -- Action warned that (oh, by the way) investments in its Internet operation would cause the company to miss its quarter by 6 cents.

They didn't put it exactly that way, but judging from the way the stock reacted, they might as well have, in what was just the latest in a series of issues that have attracted serious short-sellers to Action. Earlier this year a story by my colleague

Suzanne Kapner

questioned whether Action had stuffed its distribution channel with too much merchandise.

The company insisted it hadn't, but Action's receivables have been on the rise, which brings us to the latest chapter in the Action story: Rising receivables are always troubling, because they suggest distributors are buying more product than they can readily sell. But they're especially worrisome at Action because most of its business is for cash. With the exception of sales to retailers like

Wal-Mart

(WMT) - Get Report

and

Kmart

(KM)

, which accounted for a mere 6% of sales last quarter, Action sells most of its merchandise to club members, its distributor network, trackside, through catalogs to members of its own

Racing Collectables Club of America

and, to a very limited degree, online.

According to Action's own Web site, anybody buying trackside must pay with cash or a credit card; club members must prepay (just say charge it!) and distributors are required to pay with cash, checks, money orders or credit cards. There's nothing about special terms offered by the company -- the kind of terms that would result in receivables, which are unpaid bills from customers.

Special terms are only issued to the Wal-Marts of the world. But according to one short-seller, who has spent months dissecting Action, the biz Action does with mass merchants is too small to account for anything but a small part of the receivables.

So, if the company doesn't offer terms, why have receivables been rising? The company couldn't be reached.

But, wait, there's more:

Several weeks ago, an outfit in North Carolina advertised a "company closeout" liquidation sale of merchandise that looked suspiciously like it came from Action. However, Action CFO David Husband told me at the time that the merchandise wasn't Action's. (No story, I figured, so I never wrote anything.)

Lo and behold, a week or two later Action itself started advertising a special one-day-only "Motorsports Merchandise Extravaganza," slated for tomorrow, at the Phoenix warehouse of its collectors' club. This is believed to be the first time ever the club or Action has ever held a warehouse sale. Why is it holding the sale now, and not eight weeks later -- in November -- when there will be a major Nascar race in Phoenix? Hard to say, but attention sports fans: The fiscal year (and audited quarter) for Action

and

goracing.com ends Sept. 30.

It just so happens goracing is in the process of going public, after which it will be controlled by Action. And coincidence of coincidences: A few months ago, the operations of its collectors' club were shifted from Action to goracing.

This is where the plot starts to thicken:

Here we have Action trying to cash in on the Internet boom by taking public a newly created offshoot. However, a look at goracing's prospectus hardly tells the tale of an online speedster. A big part of goracing is a virtual mall called

SpeedMall

. It boasts increased Web traffic and a robust order rate. But a closer look at the numbers suggests goracing's order rate, after a fast start, has stalled and actually lagged, and that it was most sluggish at the height of the racing season. Based on current numbers, and a calculation done by the short-seller, the online operation is on track to do annual sales of around $18 million, not the $40 million to $50 million projected by an analyst back in August.

There also are some subtle but important changes from the original prospectus to an amended prospectus. For example, originally the company said online orders from its collectors' club accounted for 50% of all collector club orders placed in May; the figure was dropped in the amended document, without explanation, to 43%.

Not good for a company that is trying to sell itself to Wall Street as a life-in-the-fast-lane e-commerce story.

SFX Revisited

This column believes in fair and equal treatment, so if a company doesn't believe its opinions have been adequately covered, this space will more than gladly print what the company believes is its side of the story as soon as it has been received. Comments from

SFX Entertainment

(SFX)

Chairman Robert Sillerman rolled in yesterday afternoon, and were published as an "extra" to this column. If you missed it,

click here.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.