Sequential Brands Group reported its recently-hired CEO, David Conn, had departed as the brand-management company reported its active brands, AND1, Gaiam, SPRI, and Avia, again outperformed in the third quarter.

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

Conn had been appointed CEO in January 2020. Previously, he served as CEO of ThreeSixty Brands, where he played a significant role in acquiring and relaunching the FAO Schwarz and Sharper Image brands.

Last October, the brand management firm announced that Karen Murray had stepped down as director and CEO while also announcing that it was conducting a broad review of strategic alternatives, including the divestiture of one or more existing brands, the acquisition of one or more new brands, a stock buyback program, or other initiatives. Stifel has been hired its exclusive financial adviser to help in the process.

The strategic review came as the company has struggled with sales growth and a heavy debt load. In June 2019, it sold Martha Stewart Living Omnimedia for $166 million in cash to help pay down debt, although that price was significantly below the $353 million it paid for the business in 2015.

Conn’s exit was confirmed by William Sweedler, Sequential’s chairman, on its third-quarter conference call with analysts.

“I have assumed the role of executive chairman and principal executive officer replacing the CEO position going forward,” said Sweedler. ”I want to thank former CEO, David Conn, who recently departed the company.”

He also noted that Chad Wagenheim remains president and Lorraine DiSanto, previously CFO of Herman Miller Group’s retail segment has joined the company as CFO. Dan Hanbridge, who has been serving as interim CFO, left the company, as expected on November 16.

Regarding the strategic review, Sweedler said, “We continue to actively discuss alternatives with our financial advisor, Stifel, and remain focused on exploring all opportunities that best position the company for long-term success and maximizing shareholder value.”

He said lenders have been “supportive as we manage the business through the pandemic.” Sequential Brands recently amended our agreement with its second lien lender. The company closed the quarter with $22.2 million of cash, including restricted cash, and $452.2 million of debt net of cash.

The quarter marked progress operationally as non-GAAP net income from continuing operations reached $2.1 million, or $1.30 per share, compared to a non-GAAP net loss of $900,000, or 53 cents, in the prior-year quarter. Adjusted EBITDA climbed to $18.9 million, compared to $13.2 million in the prior-year quarter.

On a GAAP basis, net income was $4.5 million or $2.71, compared to a loss of $18.4 million, or $11.31. Included in income from continuing operations for the latest quarter was a $3.7 million gain on the sale of two non-core brands completed in July 2020.

Revenues, which represents royalties on its brands, were $24.0 million, down 5.5 from $25.4 million in the prior-year quarter.

“While the pandemic continues to impact the business and the industry overall, we’ve been fortunate that some of our brands have performed well given the recent tailwinds supporting a healthier, more active, fit lifestyle,” said Sweedler on the call. “The AND1, Gaiam, SPRI and Avia brands have proved resilient and have performed well at key retail partners, including Amazon, Kohl’s, Walmart and Target. In addition, we continue to explore opportunities across the entire lifestyle and active portfolio to expand our brands into new categories and territories.”

The earnings improvement benefited from a 28.7 percent reduction in operating expenses to $8.7 million, or 36.3 percent of sales, from $12.2 million, or 48.2 percent, a year ago.

Sweedler said the company continues to closely manage costs and take steps to maximize liquidity. An agreement was recently signed to immediately exit its remaining lease obligation from its previous corporate headquarters, which will result in significant expense savings over the next several years. Exiting the office space was the last piece to complete its wind-down of the legacy Martha Stewart business.

Sequential Brands also eliminated a few positions tied to the office space and continues to “scrutinize all material, non-essential expenses” to lower overhead. Said Sweedler, “Planning for the worst and hoping for the best in expenses has proved to be a valuable mantra for this team and has resulted in positive profitability.”

Sweedler concluded in his comments, “In closing, we have taken many of the critical steps promised this year to best position Sequential and return it to an asset-light brand management company. I’m confident we are on the right path and look forward to keeping you updated.”

Photo courtesy Avia