Sequential Brands Group,  the New York, NY-based parent of Avia, And1, Gaiam and SPRI, reported sales declined 14.4 percent in the second quarter ended June 30.

“Despite the ongoing challenges that the COVID-19 pandemic has presented, it has also demonstrated the durability of our business model and the demand for several of our core brands. While there is still much uncertainty in the macro-environment and the apparel and accessories industry, we believe that we’re on the right path forward to position the company for long-term growth,” said Sequential Brands Group CEO David Conn.

Other brands owned by Sequential Brands include Joe’s, Ellen Tracy, Jessica Simpson, William Rast, Heely’s, Caribbean Joe, DVS and The Franklin Mint.

Reverse Stock Split
On July 27, 2020, the company’s previously announced 1 share-for-40 shares (1:40) reverse stock split (the “Reverse Stock Split”) of the company’s outstanding common stock, par value $0.01 per share became effective.  All share and per share amounts in this press release have been adjusted to reflect the Reverse Stock Split.  Prior periods have been reclassified to reflect the change in the company’s stated capital attributable to common stock which was reduced proportionately to the Reverse Stock Split ratio, and the additional paid-in capital account which was credited with the amount by which common stock was reduced.  As a result of the Reverse Stock Split, the company is back in compliance with the minimum bid price listing rules of The Nasdaq Stock Market.

Second Quarter 2020 Results from Continuing Operations
Total revenue from continuing operations for the second quarter ended June 30, 2020, was $22.6 million, compared to $26.4 million in the prior-year quarter. On a GAAP basis, loss from continuing operations for the second quarter 2020 was $(2.9) million or $(1.78) per diluted share compared to a loss from continuing operations for the second quarter 2019 of $(3.3) million or $(2.03) per diluted share.  Non-GAAP net loss from continuing operations for the second quarter 2020 was $(1.8) million, or $(1.10) per diluted share, compared to $(2.6) million, or $(1.57) per diluted share, in the prior-year quarter.

Year-to-Date 2020 Results from Continuing Operations
Total revenue from continuing operations for the six months ended June 30, 2020, was $42.8 million, compared to $51.9 million in the prior-year period. On a GAAP basis, net loss from continuing operations for the six months ended June 30, 2020, was $(88.2) million or $(53.80) per diluted share compared to a net loss from continuing operations for the six months ended June 30, 2019, of $(8.1) million or $(5.00) per diluted share.  Included in the net loss from continuing operations for the six months ended June 30, 2020, were non-cash impairment charges of $85.6 million for indefinite-lived intangible assets related to the trademarks for the Jessica Simpson, Gaiam, Joe’s, and Ellen Tracy brands reflecting the financial impacts of COVID-19.  Non-GAAP net loss from continuing operations for the six months ended June 30, 2020, was $(12.2) million, or $(7.40) per diluted share, compared to $(6.9) million, or $(4.21) per diluted share, in the prior-year period. Adjusted EBITDA from continuing operations for the six months ended June 30, 2020, was $24.9 million, compared to $24.6 million in the prior-year period.

COVID-19 Update
The impact from COVID-19  and the pace at which there are new developments have created significant uncertainty in the current economic environment. The impacts of COVID-19 have adversely affected its near-term and long-term revenues, earnings, liquidity, and cash flows as certain licensees have requested temporary relief or deferred making their scheduled payments. However, the situation is dynamic, and the company is not currently able to predict the full impact of COVID-19 on its results of operations and cash flows.

Liquidity and Financing Update
Sequential ended the second quarter with $16.8 million in cash, including restricted cash.

As of June 30, 2020, the company was party to the Amended BoA Credit Agreement and the Fourth Amendment to the Third Amended and Restated Credit Agreement with Wilmington Trust, National Association as administrative agent and collateral agent (the “Amended Wilmington Credit Agreement”), referred to as its loan agreements (“Loan Agreements”). The Loan Agreements contain financial covenants and the company is in compliance with its financial covenants included in its Loan Agreements as of June 30, 2020. However, due to COVID-19 and its current forecasts, the company currently believes it will not be able to satisfy its covenants in its existing financing arrangements for at least twelve months from today’s date. The company expects that it will need to modify the loan covenants, obtain a waiver of the covenants or a waiver of a default, or otherwise restructure the terms of the Loan Agreements. If the company fails to comply with its financial covenants, as modified, a default under the Loan Agreements would be triggered and the company’s obligations under the Loan Agreements may be accelerated. The company continues to evaluate strategic alternatives and plans to work with the lenders to amend such financial covenants in the Loan Agreement; however, there can be no assurance that such efforts will be successful. As previously noted in the company’s filings, this risk of non-compliance creates a material uncertainty that casts substantial doubt with respect to the ability of the company to continue as a going concern.

Discontinued Operations
On June 10, 2019, Sequential completed its previously announced sale of 100 percent of the issued and outstanding equity interests of Martha Stewart Living Omnimedia, Inc. (“MSLO”), a Delaware corporation and a wholly-owned subsidiary of Sequential. The company’s after-tax net income from discontinued operations was $0.1 million for the second quarter ended June 30, 2020, compared to an after-tax net loss from discontinued operations of $(1.3) million in the prior-year quarter. The company’s after-tax net loss from discontinued operations was $(1.2) million for the six months ended June 30, 2020, compared to $(121.9) million in the prior-year period.

Photo courtesy Avia