By Eric Smith
Sequential Brands Group Inc.’s active brands of Gaiam, And1 and Avia again drove growth for the parent company in the second quarter, and their performance in brick-and-mortar stores highlighted not only growing market share but resiliency in the channel.
“The brick-and-mortar business has been strong,” Sequential Brands Group CEO Karen Murray said on Wednesday’s earnings conference call with analysts. “I think the only continuing conversation is about how we drive more traffic, bringing experiences to the stores. I think you’ll hear with the second quarter report that retailers are doing well and it’s not just the online business. It’s also what’s going on in brick and mortar.”
Sequential Brands Group reported net income for the second quarter ended June 30 of $7.2 million, or 11 cents per diluted share. Under the company’s previous ASC 605 revenue reporting standard, however, non-GAAP net income for the second quarter 2018 would have been $7.8 million or 12 cents per diluted share, flat compared to second quarter 2017 but hitting the Wall Street target.
The company reported revenue of $42.2 million. Under ASC 605, revenue for the second quarter 2018 would have been $43 million compared to $42.1 million in the second quarter 2017, also beating analysts’ estimates.
On a GAAP basis, net income for the second quarter 2018 was $3.6 million, or 6 cents per diluted share. Under ASC 605, GAAP net income for the second quarter 2018 would have been $4 million, or 6 cents per diluted share, compared to $2.5 million, or 4 cents per diluted share, in the second quarter 2017.
Adjusted EBITDA for the second quarter 2018 was $24.7 million. Under ASC 605, Adjusted EBITDA for the second quarter 2018 would have been $25.3 million compared to $24.7 million in the second quarter 2017.
The quarter saw Sequential Brands Group active division again take center stage within the portfolio, starting with Gaiam.
“Gaiam had a strong quarter with expanded distribution and new category growth,” Murray said. “The broad range of retail placement for Gaiam speaks to the versatility of the brand.”
For example, the brand is launching a higher-end apparel line, as a collection with actress Jessica Biel is coming to such retailers as Bandier, Bloomingdales, Macy’s and Lord & Taylor. But the brand’s core apparel line has a new premium line of hard goods that will soon be launching at Dick’s Sporting Goods in September.
And1 was another stalwart for Sequential Brands Group—a “key performer,” Murray said. And1 will be launching eight new stores in China in the fall, which will be an introduction of And1 to the Chinese market, and the brand continues to gain exposure through the company’s chief ambassador.
“And1’s global brand ambassador and creative director Kevin Garnett and the marketing team were out at the NBA Summer League in Las Vegas in July,” she said. “This was a great opportunity to showcase the And1 brand with top young players wearing our sneakers.”
Finally, Avia is also expanding into China, and Murray added that Sequential Brands Group has new partnerships for Avia in Argentina and Central America. Foremost, however, Avia’s position in the world’s largest brick-and-mortar retailer has been a boon.
“The Avia brand at Walmart continues to be strong, benefiting from increase shelf space and added product assortment,” Murray said. “Avia categories such as capris, leggings and socks have been particularly strong. We have a social media campaign underway with a powerful group of authentic influencers to drive awareness and engagement for the brand.”
The other big story out of Sequential Brands Group’s Q2 earnings conference call was the company’s debt refinancing. On August 7, the company entered into amended credit agreements with existing lenders led by Bank of America and certain funds managed by FS/KKR Advisor LLC.
This refinancing extends the first lien debt maturities to 2023 and the second lien to 2024, and improves our capital structure by shifting over $100 million of debt into the first lien credit facility, thereby meaningfully reducing our weighted average interest rate.
“We’re very happy with the outcome,” CFO Peter Lops said on Wednesday’s conference call. “We looked at several options, and we’re very excited to receive this commitment and support from our existing lenders. We’re able to extend our debt maturities. We improved our capital structure by shifting over $100 million of debt into the cheaper first lien, so that winds up saving us a significant amount of interest. On an apples-to-apples basis, with respect to LIBOR and other scenarios, we’re going to save about $3.5 million each on an annual basis. So, very, very significant savings there.”
Photo courtesy Avia