Sequential Brands Group’s first-quarter results were impacted by store closures due to the COVID-19 outbreak. However, its active brands – including AND1, Avia, Gaiam and SPRI – were cited as “bright spots” as consumers look to stay active at home amid lockdown measures.
“Our active brands, which consist of AND1, AVIA, GAIAM and SPRI, and are sold at mass retailers such as Walmart as well as grocery and drug stores nationwide, have been well positioned in this environment as gyms across the country have been forced to close, and consumers are now working out at home,” said CEO David Conn, CEO, on a conference call with analysts. “GAIAM and SPRI exercise equipment as well as Avia activewear, AND1 underwear and socks have also performed well.”
Other brands owned by Sequential Brands include Joe’s, Ellen Tracy, Jessica Simpson, William Rast, Heely’s, Caribbean Joe, DVS and The Franklin Mint.
Revenues, which consist of royalties from licenses, reached $20.2 million in the quarter compared to $25.5 million in the prior year quarter, a decline of 20.8 percent.
The net loss came to $85.3 million or $1.30 per share, after non-cash impairment charges of $85.6 million related to the trademarks for the Jessica Simpson, GAIAM, Joe’s and Ellen Tracy brands, reflecting the financial impacts of COVID-19. In the year-ago period, the net loss was $4.8 million or 7 cents a share.
On a non-GAAP basis excluding special items, the net loss was $10.4 million or 16 cents, compared to $4.3 million, or 7 cents. Adjusted EBITDA declined 13.3 percent to $9.8 million from $11.3 million a year ago.
“We started the year with momentum, executing a handful of deals for the Jessica Simpson brand, including hosiery, an endorsement for a consumer product deal as well as new partnerships for Caribbean Joe and Ellen Tracy. We also executed several renewals, extending terms with key licensees for AND1 and GAIAM,” said Conn. “However, COVID-19 has significantly impacted our progress.”
The company’s licensing partners have been affected by mandatory store closures and shelter-in-place orders. Said Conn, “All orders have been cut or put on hold, and there is much uncertainty around consumer spending going forward.”
Last October, Stifel was hired to explore strategic alternatives focused on maximizing shareholder value and the review continues. Conn said, “The process is ongoing, and we remain focused on exploring all opportunities, including divestitures and/or potential acquisitions that best position the company for long-term success and value maximization.”
In response to COVID-19, Sequential Brands is implementing significant compensation reductions across the company, reducing all non-essential expenses, maximizing liquidity by drawing on its revolver, and working with lenders to provide more flexibility.
Sequential Brands said it continues to be aggressive in cutting SG&A, but bad debt expense may continue to have a negative impact moving forward.
The company closed the first quarter with $13.3 million of cash and $460.7 million of debt net of cash. As of March 31, availability under its revolver was $7 million, which the company fully borrowed subsequent to the end of the quarter. As mentioned during its fourth-quarter conference call, Sequential Brands is not providing 2020 guidance due to the uncertainty caused by the pandemic.
Said Conn, “In closing, we believe the steps we are taking, coupled with our diversified portfolio of brands and channels of distribution, will assist us in tackling these challenging times, while we also explore opportunities that best position the company for long-term success and maximize value.”
Photo courtesy Avia