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:
