While many of its active brands performed well in the fourth quarter and are poised for a solid year in 2017, Sequential Brands Groups lowered its guidance for 2017, due in large part to weakness in the department store channel.

For the year ended December 31, 2017, the company now expects $170 million to $175 million in revenue, GAAP net income of $19.3 million to $21.9 million and adjusted EBITDA between $98 million to $102 million. Previously, it expected between $175 million to $180 million in revenue, GAAP net income of $22.1 million to $25.4 million and $100 million to $105 million of adjusted EBITDA.

On a conference call with analysts, Yehuda Schmidman, CEO, said the company is now expecting low- to mid-single-digit organic growth for this year versus its prior long-term goals of high single digits due to the impact the shift to online selling is having on brick-and-mortar sales. The impact, he noted, has been particularly evident among department stores as well as other “brick and mortar stores that maybe don’t have as much online growth just yet, or are announcing store closures.” Among brands, the weakness was particularly seen last year with the Ellen Tracy women’s apparel and the Revo sunglass brand.

On the brighter side, Schmidman expects to continue to see “strength” in its “core brands,” citing the And1 and Avia business at Walmart, as well as Martha Stewart, Heelys and Gaiam.

Indeed, most of its active brands are coming off strong years.

The Gaiam yoga and wellness business, acquired in July 2016, was “terrific” in 2016. For 2017, Gaiam’s distribution for hardgoods will be broadened further into the drug store channel, while the newer apparel business is set to see expansion across the board.

At Avia, additions to core basic programs, such as underwear and socks, continue to help the brand gain market share in Walmart stores, and that’s expected to continue throughout the year in 2017.

Regarding And1, he said basics such as underwear and socks have been “standout performers” at Walmart, and the brand introduced basketballs as a new category at Walmart. And1 also reached Walmart’s Canada stores and entered China through an agreement with China-based sports brand Guirenniao.

Asked if the Walmart business was facing any risks with the giant discounter recently de-stocking some basics, Schmidman said the company feels “really energized about them in general and about our businesses there” after attending the Walmart Annual Growth Summit a couple weeks ago. He added, “They are a terrific partner, our brands are solid and we’re excited about that account.”

Companywide, sales in the fourth quarter rose 44.6 percent to $45.4 million. On a reported basis, Sequential reported a net loss of $1.3 million, or 2 cents a share, for the quarter, compared to a loss of $5.7 million, or 12 cents, in the prior-year quarter. Adjusted to excluding non-recurring items largely tied to acquisitions, net income would have been $7.3 million, or 12 cents per share, compared to $11 million, or 23 cents, in the prior-year quarter, which included a non-cash benefit of $4.4 million, or 9 cents per share, related to taxes.

Adjusted EBITDA improved 14 percent to $24.2 million compared to $17.3 million in the prior-year quarter.

For the full year, revenues jumped 75.9 percent to $155.5 million. On a reported basis, the net loss was $800,000, or 1 cent a share, compared to a loss of $2.9 million, or 7 cents, in the prior year. On an adjusted basis, net income $21 million, or 33 cents per diluted share, slightly up from $20.6 million, or 48 cents, in the prior year. Adjusted EBITDA was $83.1 million, compared to $53.4 million in the prior year.

Organic growth for the year was 5 percent but below its goal of high-single-digit growth, reflecting “the challenging retail landscape,” said Schmidman.

Beyond Gaiam and its Walmart business with Avia and And1, Schmidman cited a number of growth initiatives for its Martha Stewart, Joe’s and Jessica Simpson brands to support growth in 2017. International as well as e-commerce, which represents 8 percent of sales, will also be a focus. Sales at Amazon jumped 60 percent last year and the company formed a partnership with Alibaba.

But the company will also be focused on reducing expenses and will place less emphasis on acquisitions this year. He noted that the company only acquired Gaiam in 2016.

“Our big focus in terms of where we’re allocating our time is predominantly on organization growth activation upon expense management and then of course on long-term balance sheet opportunity,” said Schmidman. “So, there are opportunities out there on M&A side, but I would tell you our focus right now especially from a capital allocation perspective is on debt pay down.”

Photo courtesy Avia