Apex Global Brands, the parent of Hi-Tec, Cherokee and Tony Hawk,  narrowed its loss in the first quarter despite a revenue decline due to the non-renewal of certain license agreements along with the impacts of COVID-19.

First Quarter Fiscal 2021 Highlights versus First Quarter Fiscal 2020 


  • Revenues declined to $4.0 million from $5.1 million
  • SG&A expenses declined to $2.9 million from $3.9 million
  • Adjusted EBITDA decreased slightly to $1.1 million from $1.2 million
  • Net loss of $1.8 million compared to a loss of $2.3 million

COVID-19 Response Update

  • Expecting tax refunds of $9.0 million of previously paid federal taxes due to the CARES Act
  • Received a $0.7 million Paycheck Protection Program loan under the CARES Act
  • Extended forbearance agreement with the senior secured lender, including a suspension of interest and principal payments

“The global macro-events of the past three months have been and continue to be challenging.  The retail industry is suffering.  The fashion industry is suffering, and we are all focused on managing our way through this difficult period,” said Henry Stupp, chief executive officer of Apex Global Brands, in a statement.  “As expected, revenues for the first quarter of Fiscal 2021 declined year-over-year due to a combination of the non-renewal of certain of our license agreements along with the impacts of COVID-19.  While much is still uncertain, we can leverage times such as these to refine our operations and find new, innovative solutions to maximize our brand assets and reduce our expenses.  We have improved our efficiencies and are now doing more with less, carefully managing our costs to achieve both a sequential and a year-over-year decline in our SG&A expenses.

“While our licensees’ e-commerce businesses saw notable improvements during the quarter, we are also fortunate that many of our global retail partners, who provide essential services such as groceries, have been able to remain open during shelter-at-home orders.  Over the past few months, we’ve also begun to see increased consumer interest in our brands, and we continue to sign new licenses for various brands in our portfolio.  Consumers are looking beyond private label programs towards brands like ours that evoke purpose and emotion, and they are willing to pay for better designed, better quality products.  Our Interceptor tactical boot brand is praised for its higher quality, greater value price point, which allows us to explore category extensions domestically and abroad.  Our entire range of Hi-Tec and Magnum products, from footwear to apparel and accessories, is respected for quality and design.  This full circle in shopping behavior as consumers return to brands is a positive for our industry.  Our wholesale and retail partners are adapting and demonstrating resilience as they continue to support our brands during these challenging times,” Stupp concluded.

CARES Act Benefits
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was passed by the U.S. federal government in March 2020, allows taxpayers to carryback net operating losses that otherwise could only be carried forward to future tax years.  As a result of the carrybacks, Apex Global Brands expects to receive income tax refunds of approximately $9.0 million of previously paid federal taxes over the next two to twelve months.

During the first quarter of Fiscal 2021, the company received a $0.7 million Paycheck Protection Program loan under the CARES Act.  As a result of the Paycheck Protection Program Flexibility Act (PPPFA), which was signed into law on June 5, 2020, this loan now matures in April 2025, and the time frame to use the loan proceeds for payroll, rent, utilities and interest has been extended to 24 weeks.  At the end of this 24-week period, Apex expects to apply for loan forgiveness based on actual spending in these categories, reduced by any decrease in average headcount in comparison to the period prior to receiving the loan.

Forbearance
Apex Global Brand and its senior secured lender agreed in April 2020 to forbearance and amendment of their credit agreement.  Apex’s earnings in Fiscal 2020 did not achieve the level of Adjusted EBITDA that was required by the senior secured credit agreement.  However, the lender agreed not to enforce its rights through July 27, 2020.  The forbearance agreement also has provisions that assist Apex’s cash management as the company manages through the COVID-19 pandemic, which is expected to continue to have an adverse effect on Apex’s revenues, especially in the near term.  Rather than receive interest and loan amortization payments in cash during the forbearance period, the company’s senior secured lender has agreed to receive its interest payments in the form of additional principal amounts due.  Apex’s senior lender also agreed to ease other requirements during the forbearance period by lowering the minimum Adjusted EBITDA, minimum cash and borrowing base requirements.  At the conclusion of the forbearance period, these amended items revert to the original terms of the credit facilities. For further information on the forbearance, please refer to the company’s Form 10-Q for the period ended May 2, 2020, which was filed today with the Securities and Exchange Commission.

Apex Global Brands’ subordinated lenders are also supporting the company by agreeing to temporarily suspend cash interest payments on subordinated debt through October 1, 2020.

The timing of Apex’s tax refunds is dependent on processing by the Internal Revenue Service and therefore difficult to predict, but when received, a portion of these proceeds is expected to be used to pay the deferred interest and loan amortization payments due to the company’s lenders.

Revenues  
Revenues were $4.0 million in the first quarter of Fiscal 2021, a decrease of 20 percent from $5.1 million in the first quarter of the prior year.  The decline in first-quarter revenues reflects the non-renewal of Apex’s Cherokee license in Japan and the decrease in sales by the company’s licensees related to COVID-19 shelter-in-place and similar orders.

Operating and Non-Operating Expenses
Selling, general and administrative expenses, which comprise the company’s normal operating expenses, were $2.9 million in the first quarter of Fiscal 2021, a decrease of 25 percent from $3.9 million in the first quarter of the prior year.  This year-over-year decrease in SG&A reflects the beneficial impact of the company’s restructuring efforts, which resulted in reduced spending for payroll, facilities and general operations in Fiscal 2021 compared to Fiscal 2020, in addition to cost-savings measures undertaken in response to the COVID-19 pandemic and the related shortfall in revenues.

The market capitalization of Apex and its revenue projections declined during the first quarter as a result of the COVID-19 pandemic, which necessitated a $5.4 million non-cash impairment charge to lower the book value of the company’s goodwill and a $4.4 million non-cash impairment charge to lower the book value of the company’s non-amortizing trademarks.  Additional information regarding these adjustments can be found in the company’s Form

10-Q for the period ended May 2, 2020
Interest expense was $2.2 million in the first quarter, which was consistent with interest expense in the first quarter of the prior year.
The company reported an income tax benefit of $9.4 million in the first quarter of Fiscal 2021, primarily due to the CARES Act, which changed federal regulations regarding the carryback of net operating losses.  The company anticipates receiving refunds of previously paid federal income taxes of approximately $9.0 million from net operating loss carrybacks.

Profitability Measures
Primarily due to the $9.8 million in non-cash impairment charges, the company’s operating loss for the first quarter of Fiscal 2021 totaled $9.0 million.  In the first quarter of the prior year, the company reported operating income of $0.6 million.

Net loss was $1.8 million in the first quarter of Fiscal 2021, or a loss of $0.33 per diluted share, on 5.6 million shares outstanding, compared to net loss of $2.3 million, or a loss of $0.44 per diluted share, on 5.1 million shares outstanding, in the first quarter of the prior year.
Adjusted EBITDA totaled $1.1 million in the first quarter of Fiscal 2021 compared to $1.2 million in the first quarter of the prior year.  This decline was minor as the company’s lower revenues were substantially offset by reductions in SG&A.

Balance Sheet & Liquidity Measures
As of May 2, 2020, the company had cash and cash equivalents of $1.3 million.  The company’s forbearance agreement with its senior secured lender and the modification of the company’s subordinated promissory note agreements defer the interest and principal payments that would otherwise be payable in cash by the company.  These deferrals extend through the forbearance period for the company’s senior secured debt and extend through October 2020 for the company’s subordinated debt.

The company had outstanding borrowings at May 2, 2020 of $57.3 million, including its senior secured credit facility, subordinated promissory notes, and Paycheck Protection Program promissory note.  Excluding a portion of the Paycheck Protection Program loan, the company’s borrowings are reflected as a current obligation in its May 2, 2020 balance sheet, net of deferred financing costs, as current forecasts indicate the company may incur additional defaults after the expiration of the forbearance agreement at the end of July.  Additional information regarding the company’s debt and the related forbearance is available in Apex’s quarterly report on Form 10-Q for the quarter ended May 2, 2020.

Steve Brink, the company’s chief financial officer, commented, “As a result of the COVID-19 pandemic, Nasdaq temporarily suspended its $1.00 per share minimum bid price requirement until the end of June.  We currently expect to present our compliance plan proposal to Nasdaq in early July, but at this time, there has been no change to our listing status since the filing of our Form 10-K in April.”

Fiscal 2021 Outlook
Due to the evolving and uncertain nature of the COVID-19 pandemic and its impact on Apex Global Brand’s business, the company will not be providing Fiscal 2021 guidance at this time.  While revenues are expected to be down year-over-year, so too will the company’s expenses.  In response to the anticipated decline in revenues, Apex Global Brands has implemented cost-savings measures whose full effect will be more fully seen in the second quarter of Fiscal 2021.  Apex cannot provide assurance that these cost savings measures will be adequate to offset further revenue declines, and COVID-19 may have a material impact on operating results, cash flows and financial condition beyond Apex’s current expectations.  The company has minimum guarantees with many of its licensing partners that can support its royalty revenues, but the full extent to which these minimum guarantees will be maintained throughout the duration of the pandemic cannot be presently determined.

Apex Global Brands 2020 Annual Shareholder Meeting
Due to the evolving and uncertain nature of the COVID-19 pandemic and its impact on Apex Global Brands, the company is expecting to hold its annual meeting of stockholders in October 2020 using a virtual format.  These plans are subject to change.

Apex Global Brands’ lifestyle brands include Hi-Tec, Magnum, 50 Peaks, Interceptor, Cherokee, Tony Hawk, Point Cove, Carole Little, Everyday California and Sideout.

Photo courtesy Apex Global Brands