By Eric Smith
Sequential Brands Group Inc. began 2020 with a key leadership change, and the New York, NY-based parent of Avia, And1 and Gaiam is eyeing further transformational moves this year.
David Conn, who was appointed as the company’s CEO on January 6, hosted his first earnings call last week when he delivered news of a fourth-quarter revenue decline and widened net loss.
But Conn also outlined the transformation that Sequential commenced last year—kicking off with the divestitures of the company’s Martha Stewart and Emeril Lagasse brands—and is continuing in 2020.
“Following the divestitures, the company spent the remainder of 2019 and first part of this year focused on optimizing the cost structure of the business, which included a significant reduction of headcount, SG&A and lease-related expenses,” Conn said on the earnings conference call. “The culmination of this process will be the consolidation of our two New York City offices into one space when we exit our current corporate headquarters. We will then move the team into our existing Active division’s office in Midtown later this year.”
Conn said Sequential has already subleased more than 60 percent of its current corporate headquarters and “continue to actively pursue all sublease opportunities for the balance of the space.”
As a result of these cost-cutting initiatives, Conn added, Sequential anticipates an operating expense base of approximately $30 million on an annualized run rate basis starting this year.
“This is a meaningful reduction compared to the company’s approximately $70 million operating expense base prior to the divestiture of the Home division,” Conn said. “We expect the savings from these cost reductions to drive a significant margin improvement in 2020. As part of these efforts, last year, we also amended our lending agreements with Bank of America and KKR, who continue to be supportive partners. Our updated lending agreements further improve our liquidity and cash flow.”
These moves are all part of the company’s strategic review, announced in October and designed to maximize shareholder value. Sequential is considering divestitures, acquisitions, stock buyback programs and other initiatives, Conn said.
“As we move ahead, our focus is centered on driving revenue growth across our portfolio of brands, finishing the last part of expense reductions and completing the strategic review process,” he said. “We believe these initiatives, coupled with the work already completed in 2019, will help further position the company for long-term success.”
Looking more closely at Sequential’s fourth quarter, total revenue from continuing operations was $24.2 million, compared to $35.2 million in the prior-year quarter.
On a GAAP basis, loss from continuing operations for the fourth quarter 2019 was $7.9 million or 12 cents a share per diluted share compared to a loss from continuing operations for the fourth quarter 2018 of $(5.7) million or (9) cents per diluted share. Non-GAAP net loss from continuing operations for the fourth quarter 2019 was $8.9 million, or 14 cents per diluted share, compared to non-GAAP net income from continuing operations of $2.6 million, or 5 cents per diluted share, in the fourth quarter 2018.
Adjusted EBITDA from continuing operations for the fourth quarter of 2019 was $8 million, compared to $17.8 million in the prior-year quarter.
For the full-year, total revenue from continuing operations was $101.6 million, down from $127.3 million in the prior year.
On a GAAP basis, net loss for the full year was $34.3 million, or 53 cents per diluted share, compared to a net loss for the prior year of $17.5 million, or 27 cents per diluted share. Non-GAAP net loss from continuing operations for the full-year was $16 million, or 25 cents per diluted share, compared to non-GAAP net income of $8.1 million, or 13 cents per diluted share, in the prior year.
Adjusted EBITDA from continuing operations for the full-year was $45.8 million, compared to $69.9 million in the prior year.
Conn said some of Sequential’s assets—yoga brand Gaiam, in particular—are feeling momentum as 2020 gets underway.
“Gaiam continues to be a leading brand in the yoga industry and is also uniquely positioned in the health and wellness space, which is one of the fastest-growing consumer product sectors,” Conn said. “We are actively pursuing opportunities for the brand to capture more market share beyond its core yoga business. Our previously announced strategic review process continues. After joining the company, the board of directors paused the process so that I had a chance to become familiar with Sequential’s operations and its brands. I believe there are several interesting opportunities regarding the strategic direction of this company, and we are evaluating all of them.”
Other brands owned by Sequential include Joe’s, Ellen Tracy, Jessica Simpson, William Rast, Heely’s, Caribbean Joe, DVS, The Franklin Mint, and SPRI.
The company didn’t address the coronavirus impact in the fourth-quarter earnings report or on the earnings call.
Photo courtesy Sequential Brands