Naked Brands Stock Analysis


Business Description:

  • Designer, distributor, wholesaler and retailer of lingerie and swimwear through different brands.

  • Stella McCartney and Heidi Klum licenses recently expired, Frederick’s of Hollywood - only licence remaining.

  • Revenue segments

  • NZ bringing most of EBITDA and second in revenues

  • Low margins or losing money in other segments

  • Revenues from all segments down over the last 2 years except e-commerce showing constant sales

  • Most of the losses come from “Unallocated”

Catalysts:

  • Stock given 180 more days to maintain share price of $1.00 to remain on the NASDAQ

  • Management wants to focus on NZ and Australia

  • Management intends to grow e-commerce business

  • Activist investors could potentially try to profit by selling or liquidating real estate


Risks:

  • High competition with most famous competitor being Victoria’s Secret (owned by L Brands) itself in decline

  • Online competition from Amazon and fast changing consumer habits

  • Stock dilution of more 100,000% since 2018

  • Changing the business might be too costly and not worth it


Financial Analysis:

  • Revenues of $54.4 million in TTM down from $59.4 million in FY20 (ended Jan 2020) and $106 million in FY16.

  • TTM Operating Expenses of $34.4 million vs $39.7 million FY20.

  • 39% in Brand Management - down with lower marketing expenses

  • 27% in corporate and administrative

  • 6% in repayment of debts (finance)

  • 17% in brand transition, restructure and transaction - termination of licenses

  • Most of the expenses come from poor management, main reason for negative EBITDA

  • Net loss of $29.5 million vs $24.9 million for FY20

  • Balance Sheet - Have been diluting shares to raise capita

  • Total assets: $59.2 million including $15.4 million in net PP&E; total liabilities: $60.3 million

  • Cash: $11.9 million, debts: $14.7 million, current assets: $26.4 million, current liabilities: $33.1 million.

  • Unlikely to go bankrupt in the coming 5 years with such a balance sheet but for how long will their shares be accepted as currency?

How do we value a company looking at a scenario where an activist investor tries to liquidate most of the real estate and change the business?


Read the full analysis here:

https://ishfaaqpeerally.teachable.com/courses/662813/lectures/29236858



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