While posting a steep loss on impairment charges in the third quarter, Sequential Brands reported that its three active brands – Avia, Gaiam and AND1 – are all gaining traction in the marketplace.
On a conference call with analysts, Karen Murray, CEO, said the Avia brand is already seeing increased shelf space and product assortment due to a new direct-to-retail partnership with Walmart.
“This is a very positive development for our brand in today’s marketplace, especially as we’ve seen competitors lose their in-store presence or have their shelf space reduced,” said Murray.
Murray was apparently alluding to ongoing moves to phase out Danskin Now, owned by Iconix, from Wal-Mart’s selling floors as well as C9 Champion from Target.
She added, “We also expect additional positive momentum for the Avia brand based on initiatives related to our new brand ambassador, which includes the opportunity to grow the brand domestically into a higher tier of retail distribution, as well as internationally.”
Internationally, Murray noted that Avia’s partner opened its first store in China and the brand is in further discussions with them for larger strategic initiatives.
Gaiam, the yoga brand acquired by Sequential in 2016, “continues to be a top performer with strength in both hard goods and soft goods business,” according to Murray.
In the quarter, the Jessica Biel Gaiam collection debuted at Bandier, Bloomingdales, Macy’s, as well as other brick-and-mortar locations and online. Said Murray, “We kicked off the launch with a celebratory event for top tier media and key retail partners. Overall, the launch garnered approximately $75 million media impressions and 2.5 million social media impressions and sales are off to a strong start.”
Finally, Murray said AND1 “had a very strong quarter,” driven by its core products at Walmart. In recognition of the basketball brand’s 25th anniversary this year, AND1 has implemented several new marketing initiatives celebrating the brand’s streetball roots.
“One recent initiative that we launched was our paint the parks program, designed to improve basketball court conditions in inner city parks nationwide. The first park that was completely refurbished and repainted was in West Oakland, California, and included a launch event with popular musical artists and celebrity guests,” said Murray. “TNT aired the program during NBA season opening broadcast. AND1’s global ambassador and Creative Director, Kevin Garnett has been instrumental in setting the direction of these marketing initiatives. Internationally AND1 continues to gain traction. The brands first two stores in China just opened and plans are underway for three more stores to open there next month.”
The net loss in the third quarter ended September 30 was $9.3 million, or 15 cents, compared to the net loss of $24.2 million, or 38 cents, in the third quarter 2017. Included in the loss for the latest quarter were non-cash impairment charges of $17.9 million for indefinite-lived intangible assets related to the trademarks of two non-core brands Sequential did not identify.
The latest quarter also included a $4.2 million expense, to be paid out over several years, related to a settlement with a licensee as part of a strategic shift to a direct-to-retail license with Walmart for Avia.
Revenue in the quarter grew to $41.2 million, compared to $39.0 million in the third quarter 2017. On a non-GAAP basis, earnings were $3.1 million or 5 cents, compared to $6.5 million, or 11 cents, in the prior year period. Non-GAAP results include the Avia litigation charge but exclude the impairment charges and other non-recurring items.
Adjusted EBITDA was $21.0 million, compared to $23.3 million in the prior year quarter.
Murray identified six “core” brands – AND1, Avia, Gaiam, Martha Stewart, Jessica Simpson and Joe’s – that represent approximately 80 percent of the business as the company’s largest growth drivers. Other brands include Ellen Tracy, William Rast, Emeril Lagasse, DVS, Heely’s, Caribbean Joe, The Franklin Mint and Spri.
She also indicated that the other three core brands, Martha Stewart, Jessica Simpson and Joe’s, are performing well. Asked which brands are underperforming, she cited Heelys while noting that the company is “disappointed in what’s going on with our international distributor.” Caribbean Joe was called out for disappointing results.
Murray said, “So all in all, our core brands which represent 80 percent of the business are really strong. And then we have a few underperformers which are really the smallest brands within our portfolio. But we feel really good about the traction with all the brands in a quarter.”
Looking ahead, Sequential said it expects sales for the year to be at the lower end of the range of mid to high single-digit revenue growth. The company maintained its projection for low to mid single-digit adjusted EBITDA growth
Image courtesy Avia
