By Thomas J. Ryan
Among its active-lifestyle brands, Heelys and Gaiam delivered the strongest performances in the third quarter for Sequential Brands Group (Nasdaq:SQBG). And although the company beat and met Wall Street’s top- and bottom-line expectations for the quarter, investors pounced on weaker full-year earnings projections, sending the stock down more than one-third following the November 3 release.
Total revenue for the quarter ended September 30 jumped 82.6 percent to $42 million, largely on its acquisitions of Gaiam and the Martha Stewart brand. Net earnings slumped 48.1 percent to $1.3 million, or 2 cents a share, due largely to a tax charge in the latest period versus a tax benefit in the year-ago period. On an adjusted basis, net income improved 50 percent to $7.5 million, or 12 cents per share. Adjusted EBITDA climbed 58.6 percent to $24.9 million.
“We’re pleased to report that our business activation team is executing and our portfolio brand health is solid,” said Yehuda Shmidman, CEO, on a conference call with analysts. “Highlights in the third quarter included growth from existing brands such as Jessica Simpson, William Rast and Heelys, and revenue from recently acquired brands inclusive of Joe’s Jeans, Martha Stewart, Chef Emeril and Gaiam.”
The company’s other brands include And1, Avia, Revo, DVS and Ellen Tracy.
The company ended the quarter with approximately $20 million of cash on hand, net of approximately $32 million of balance-sheet cash used to help finance the July 2016 acquisition of Gaiam.
Looking ahead, Sequential Brands said it plans to continue to invest in building on its international momentum, expanding its digital presence and forming and supporting key partnerships. The company licenses many of its brands. For instance, both Avia and And1 are licensed to Walmart in the U.S.
Shmidman noted that the company recently announced a new long-term agreement with GRN, a leading sports retailer in China with over 4,000 stores across the country, to bring the And1 basketball brand to the region. GRN will develop and distribute a line of men’s and boys’ basketball apparel, accessories and footwear. The collection will launch in 2017 across both traditional and digital retail channels. Standalone And1 stores, as well as women’s apparel and women’s footwear, are planned for 2018.
Sequential Brands will also continue to invest in Martha Stewart. The fourth quarter will also include higher-than-expected costs related to Martha Stewart’s New York City headquarters lease acquired in the transaction. As a result of the investments and the lease expense, the company now expects net income in the range of $7.7 million to $11 million for 2016, down from a range of $12.7 million to $14.6 million under its prior guidance. Adjusted EBITDA for 2016 is now expected between $83 million to $88 million, versus $88 million to $91 million previously. Revenues are still expected to come the range of $155 million to $160 million.
Photo courtesy Heelys
