Apex Global Brands, the parent of  Hi-Tec and Cherokee, reported a net loss of $1.1 million in the fourth quarter ended February 1 compared to net income of $0.2 million a year ago. Revenues declined to $5.5 million from $6.1 million.

Adjusted EBITDA decreased to $2.4 million from $3.1 million.

The company also owns Magnum, 50 Peaks, Interceptor, Tony Hawk, Point Cove, Carole Little, Everyday California and Sideout.

For the full-year, revenues declined to $21.0 million from $24.4 million. Adjusted EBITDA decreased to $7.8 million from $9.8 million

“While fourth-quarter results were in line with our expectations, there is no denying the extent of the challenges COVID-19 has presented our company, our industry and our world,” said Henry Stupp, chief executive officer of Apex Global Brands. “While our management team has successfully weathered financial crises before, the size and scale of this world health pandemic is unprecedented. In an effort to do our part to slow the spread of the virus and abide by CDC and WHO guidelines, beginning in mid-March, we transitioned our team to work from home status by leveraging our cloud-based accounting, product development and digital asset management systems. I want to thank our licensees, retail partners, service providers, and the Apex team for their swift response to these difficult circumstances, which enabled us to move forward while efficiently supporting each other.

“Many of our brand partners and licensees are also facing negative consequences as a result of COVID-19. We are closely working with our partners across the globe to provide a unique set of tools that will further the long-term potential of each of our brands and products. At the same time, we are actively managing our own internal business and proactively taking the necessary cost-cutting measures to reduce our expenses. In addition to reducing marketing spend, nonessential travel and unfortunately our headcount, the executive team and the board of directors have reduced salaries beginning in April. We are also fortunate to have received a paycheck protection program loan that will help maintain our current employee base and cover other basic expenses. Furthermore, in the coming months, we expect to receive refunds of taxes we paid in previous years, which will also help our liquidity.

“In the near term, we are expecting a downturn in revenue consistent with our entire industry. While we feel it is best not to provide financial guidance at this time, we remain confident in our agile business model, which includes a well-established global distribution network and multiple unique digital channels that are well-suited for the future consumer landscape and will ultimately position our business strongly when the economy inevitably returns,” Stupp concluded.

CARES Act Benefits
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was enacted by the U.S. Federal Government on March 27, 2020, grants taxpayers the ability to carryback net operating losses (NOLs) that otherwise could only be carried forward to future tax years. Apex Global Brands is now able to carry back NOLs from its fiscal years ending in February 2018, 2019 and 2020 and obtain refunds of federal taxes that it previously paid. Apex expects to receive approximately $8.0 million in tax refunds in accordance with these new rules. These refunds will be received in various installments as the company’s carryback claims and amended returns are received and processed by the Internal Revenue Service.

In addition, as a U.S. small business, Apex Global Brands qualified for the Paycheck Protection Program (the “PPP”) of the CARES Act, which allows businesses and nonprofits with fewer than 500 employees to obtain loans to maintain their workforce and cover certain basic expenses as they manage business disruptions caused by COVID-19. On April 20, 2020, the company received loan proceeds of $0.7 million. This loan matures on April 20, 2022 and bears interest at a fixed rate of 1.0% per annum, payable monthly, commencing in six months from the date of issuance. Under the terms of the PPP loan, however, the principal, or a portion of the principal, maybe forgiven as long as the loan proceeds are used for certain expenses as described in the CARES Act, such as payroll costs, employee benefits, rent, utilities and interest.

Forbearance
On April 30, 2020, Apex Global Brand’s senior lender agreed to a 90-day forbearance and amendment of its credit agreement with Apex. The lender agreed to not enforce its rights through July 28, 2020 under the company’s senior secured credit facility. The forbearance agreement also has provisions that assist Apex in managing its cash flows as the COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on Apex’s revenues. Rather than receive interest and loan amortization payments in cash during the forbearance period, the company’s senior 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 during the forbearance period.

The company’s subordinated lenders are also supporting the company by agreeing to temporarily suspend cash interest payments due to them. All deferred interest and loan amortization payments are expected to be repaid in cash with a portion of the proceeds from the federal tax refunds that Apex is expecting to receive.

For further information on the forbearance agreement, please refer to the company’s Form 10-K for the year ended February 1, 2020, that was filed today with the Securities and Exchange Commission.

Revenues
Revenues were $5.5 million for the fourth quarter of Fiscal 2020, a decrease of 10% from $6.1 million in the prior-year period. For the full year, revenues totaled $21.0 million, a decrease of 14% from $24.4 million in the prior year. The year-over-year decline in fourth-quarter revenues reflects the non-renewal of Apex’s Cherokee license in South Africa and its Tony Hawk license in Canada. Hi-Tec and Magnum royalty revenues also declined internationally, primarily due to the uncertainty surrounding Brexit and exchange rate fluctuations.

Full-year revenues were also impacted by the non-renewal of the Cherokee license in South Africa and the disposition of the company’s Flip Flop Shops franchise business in June 2018. Apex’s revenues were further impacted by higher tariffs in the U.S. and reduced royalties from the company’s licensees in Europe. These decreases were partially offset by having a full year of revenues from the company’s design services agreement with a retailer in China, which started midway through Fiscal 2019.

Operating and Non-Operating Expenses
Selling, general and administrative expenses (SG&A), which comprise the company’s normal operating expenses, were $3.1 million in the fourth quarter of Fiscal 2020, consistent with the prior year. For the full year, SG&A totaled $13.3 million, down 9% from $14.6 million in Fiscal 2019. This significant 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 operating costs in 2020 compared to 2019. As part of these efforts, Apex and its landlord in Amsterdam agreed to early termination of a building lease, which reduced Apex’s long-term lease obligation by $2.4 million.

The market capitalization of Apex declined during the fourth quarter, which necessitated a $4.1 million non-cash impairment charge to lower the company’s goodwill book value. Additional information regarding this adjustment can be found in the company’s Form 10-K for the year ended February 1, 2020.

Interest expense was $2.1 million for the fourth quarter, which includes $0.6 million of non-cash charges for deferred financing costs. For the full year of Fiscal 2020, non-cash deferred financing costs were $2.3 million. In addition to ongoing interest payments and deferred financing costs, Apex’s Fiscal 2019 results also include a $3.2 million non-cash charge related to the refinancing of the company’s former credit facility, which did not repeat in Fiscal 2020.

Prior to Fiscal 2020, the benefits of the deferred tax assets of the foreign subsidiaries that Apex acquired in its acquisition of the Hi-Tec brands were not being recognized due to the cumulative losses generated by those foreign subsidiaries. In Fiscal 2020, however, the company obtained approval to combine certain of its subsidiaries in the Netherlands as one tax filing group. This determination allowed the company to recognize tax benefits for a majority of the remaining uncertain tax positions taken in prior years. The company paid cash taxes of approximately $1.2 million in the full year of Fiscal 2020, compared to $1.3 million in the previous year.

Profitability Measures
Apex’s operating loss for the fourth quarter of Fiscal 2020 totaled $3.3 million, as compared to operating income of $2.4 million in the prior-year period. The operating losses in the fourth quarter of 2020 resulted primarily from the non-cash goodwill impairment charge of $4.1 million. The operating loss for the full year of Fiscal 2020 was $4.9 million, compared to operating income of $1.9 million for Fiscal 2019. The Fiscal 2020 loss includes $9.1 million of non-cash impairment charges.

Net loss was $1.1 million for the fourth quarter of Fiscal 2020, or a loss of $0.21 per diluted share, on 5.6 million shares outstanding, compared to net income of $0.2 million, or $0.04 per diluted share, on 4.8 million shares outstanding, in the fourth quarter of the prior year. These share and per share amounts reflect the company’s one-for-three stock split in September 2019.

Net loss for Fiscal 2020 was $11.5 million, or a loss of $2.12 per diluted share, on 5.4 million shares outstanding, compared to a net loss of $11.5 million, or a loss of $2.45 per diluted share, on 4.7 million shares outstanding, in the prior year.

Adjusted EBITDA decreased to $2.4 million for the fourth quarter of Fiscal 2020 from $3.1 million in the prior year. This decline was due primarily to the lower revenues discussed above. Adjusted EBITDA for Fiscal 2020 decreased to $7.8 million from $9.8 million for Fiscal 2019.

Balance Sheet And Liquidity Measures
As of February 1, 2020, the company had cash and cash equivalents of $1.2 million. The company’s current cash balance is approximately $1.5 million.

The company has outstanding borrowings totaling $57.6 million, including its senior secured credit facility and subordinated promissory notes. These loans are subject to financial covenants, including maintaining specified levels of Adjusted EBITDA and cash. The company’s operating results for the 12 months, ended February 1, 2020, were below the minimum EBITDA requirement, but as noted above, the company’s senior lender has agreed to forbear from enforcing its rights through July 27, 2020. At February 1, 2020, the company’s total borrowings are reflected as a current obligation in its balance sheet, net of deferred financing costs, as current forecasts indicate the company may incur additional defaults after the expiration of the forbearance agreement. Additional information regarding the events of default and the related forbearance is available in Apex’s annual report on Form 10-K for the year ended February 1, 2020.

Reverse Stock Split
On September 27, 2019, the company affected a one-for-three reverse stock split, which reduced the company’s number of outstanding shares of common stock from approximately 16.6 million shares to approximately 5.5 million shares and decreased the number of authorized shares of common stock from 30.0 million shares to 10.0 million shares.

Subsequent to the reverse stock split, the Nasdaq Hearings Panel found that the company was in compliance with the Nasdaq listing requirements, including the minimum bid price rule, but that the company would be subject to a monitoring period that ends in December 2020. Nasdaq has recently temporarily suspended its minimum bid price rule in response to the COVID-19 pandemic through June 30, 2020. For further information on the compliance requirements and monitoring procedures, please refer to the company’s Form 10-K for the year ended February 1, 2020.

Fiscal 2021 Outlook
Due to the evolving and uncertain nature of COVID-19 on Apex Global Brand’s business, the company will not be providing Fiscal 2021 guidance at this time. COVID-19 may have a material impact on Apex’s operating results, cash flows and financial condition, making accurate forward-looking projections very difficult at this time.