Q4 2019 Earnings Call
We told the line the conference I would begin shortly thank you.
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Thank you for standing by the first the conference operator, welcome to extract brands' fourth quarter and and you are 20 <unk> earnings Conference call.
After the presentation, there will be an opportunity to ask questions to join the question to you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, one operator by pressing star in zero.
Please be advised that reproduction of this call in whole or in part is not committed without prior written authorization of X L brands and as a reminder, this conference call is being recorded.
I would now like to turn the call over to Andrew Berger.
I've asked Burger and cool. Thank you Andrew you may now begin.
Good evening, everyone. Thank you for joining us we appreciate your participation and interest and hope that all of you are safe can be difficult times.
The thoughts on the call today, or chairman and Chief Executive Officer, Robert The Lauren Chief Financial Officer, Jim Heron, and executive Vice President of <unk> business development in treasuries that boroughs.
Now every once you have had access to the earnings release for the fourth quarter in fiscal year ended December 31st 2019, which went out after the market close today.
And in addition, the company Weve filed with the Securities and Exchange Commission. Its annual report on form 10-K.
Please note that given the that's associated with Cobot 19, the company needed to extend the filing date up at the annual report on form 10-K.
Release, and the annual report will be available on the copies website at Www Dot X L brands Dot com.
This call is being webcast a replay will be available in the company's investor Relations website.
Before we begin please keep in mind, but on this call will contain forward looking statements. All forward looking statements are subject to risks and uncertainty, but could cause actual results could differ materially or certainly expectations discussed here today.
These risk factors are explained in detail in the Companys SEC filings.
Sell does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Also in significantly at this time the cold been nice you pandemic is now having a significant impact on the company's business financial condition cash flow and results of operation.
There are significant uncertainty about the duration of the extent of the impact of the virus. The dynamic nature of these circumstances you what is that on this call could change materially at any time.
Finally, please note that on todays call management will refer to certain non-GAAP financial measures such as non-GAAP net income non-GAAP diluted earnings per share in adjusted EBITDA.
Management uses these non-GAAP metrics as measures of operating performance to assist you compared performance from period to period.
Just a basis it to identify business trends related to the company's results of operation.
Our management believes these financial performance. My measurements are also useful because these measure adjust these measures adjust for certain costs and other events that management believes are not representative of our core business operating results and off they provide supplemental information to assist investors.
Are you waiting the Companys financial results.
These non-GAAP measures should not be considered in isolation, whereas alternatives to net income earnings per share or any other measure up financial performance calculated and presented in accordance with gap.
May refer to the attachment to the company's earnings release or to park to item seven of the form 10-K for a reconciliation of non-GAAP measures I'm pleased to introduce Robert the Lauren Chairman and Chief Executive Officer, Bob. Please go ahead.
Thank you Andrew Good evening, everyone and thank you for joining US that's Andrew stated I Hope all of you and your families are safe and healthy.
We're all working from home these days.
Yeah.
Hi.
Give an overview of our 2019 financial performance and provide some operating highlights after that our CFO, Jim inherent will discuss our financial results in more detail.
Before I discuss our financial results I want to take a moment.
I'm open to talk about the advances the carbon 19 pandemic. It is an unprecedented event that comes with a great deal of uncertainty.
What is happening throughout the world is not only are human tragedy, but may result in a significant global economic disaster. Most challenging part of all this is the uncertainty and how long it will be and how will the consumer emerge from this one it's all over it isn't nearly impossible to forecast us it is too so.
And just how what the overall economic impact will be XL, though we believe it will impact our business in Q1 in Q2, 2020, and perhaps the balance of the year.
That said the current challenge is with our spring deliveries, we are experiencing canceled orders and in certain cases goods are not being received by our retail account.
They have closed their distribution centers, we are managing through this by moving certain core products forward to summer and early fall and if we have any unsold inventory.
We will explore selling it into off price channels or perhaps even packing up some good for spring 2021, we're very fortunate in that part of our design strategy and brand DNA across our brands is to platform your own fabrics that our season agnostic at this time, we do not anticipate.
He said, we will have significant inventory to liquidate.
With respect to our expenses and in order to conserve our cash we have taken appropriate action to reduce all cost, including reducing employee compensation across the board following certain employees for the management of inventory cutting all non essential cost and other measures to conserve cash including.
Working with our suppliers and retail partners to better time cash flows to ensure that we will not only weathered the storm, but emerged from it stronger.
Our goal and all of this is to be completely transparent with our retail in supply chain partners and collaborate fairly with them to work through this together also we are doing everything possible to minimize the impact.
On our employees finally, we are working through the various government assistance programs that have been rolled out over the past month.
Oh, we're XL team members are showing their dedication to excel and our strong consumer brands. They are working remotely and continue to operate the business in these uncertain times I have been overwhelmed by how our teams have come together to address these events and I believe it speaks to the true strikes have excess.
Further we believe that our transition from a pure licensing business to a vertical consumer products company is the optimal strategy to positioning itself growth when business gets back to normal.
Now I'd like to give an overview of our financial performance for 29 team. We are pleased to report that we achieved 11.4 million revenues for the fourth quarter up 14% front you for 28 gene we ended the fiscal year with $41.7 million and total revenues.
Which was up approximately 18% from last year. This topline revenue is directly attributable to the investments we have made in our apparel and jewelry wholesale in E commerce businesses and the completion this year up our transition from a pure licensing business to a licensing wholesale and direct consumer or vertical business model.
This business model change it gives us more control over our products higher margins and significant growth potential and multiple channels, including direct to consumer.
Mining this new capability with our significant licensing revenue helped us to deliver strong topline growth in 29 team, while our EBITDA was not.
What we had hoped for primarily due to onetime scheduling conflicts with the availability of our TV.
Talent during December 29 team as well as our C. Wonder brand launching at Walmart in spring 2020, rather than as planned for fall 2019.
Going forward, we believe our highly leverageable operating model, including our proprietary technologies designed production and supply chain platform provides us with significant competitive advantages our focus remains on expanding distribution of our brands through interactive TV digital media wholesale and.
Direct to consumer sales with our products with the goal of being everywhere our customer shop.
Same time, we will continue to look for a dynamic consumer lifestyle brands that are strategic and synergistic to add to our portfolio such as the Halston Heritage acquisition. We made in Q1 29 gene and the long about brand, which we acquired a 50% interest and during Q4 29.
Our Halston heritage premium retail distribution license business did well under our current licensee in 29 team we watch the longer Burger brand on QVC in November 2019 within weeks at our acquisition as well as introducing it online in a peer to peer digital model and based on preliminary results.
From both channels. We believe this addition to our brand portfolio again to return a very strong ROI starting in 2020.
In these difficult times, we're happy to be able to offer people across our country away to generate extra income due our next generation peer to peer social selling platform also these acquisitions diversify our distribution and category expertise.
Now, let's take a closer look at our operations like distribution channel our interactive television business performed well in 29 chain with our brands effectively performing on plan at QVC for the year, we also executed.
A successful collaboration with new balance on T.D.C. During 2019 looking ahead to 2020, our strongest brand in our interactive television business continues to be the Isaac Mizrahi brand. We have already started taking actions to grow the business with QVC and 2020, including launching new categories and increasing.
Six appearances at the same time, we're currently working towards transitioning our age by hosting business from our direct to retail license with QVC to home sale model in the latter half a 2020 more to come on this in future quarters of course, this all depends how the events cobot 90.
In fully unfold.
And our licensing business, we continue to grow and manage our portfolio of over 60 licensees across.
Our brands most significantly we have been successful in developing business and ancillary categories have signed over 10, new categories for C. Wonder with distribution at Walmart most of which were slated to launch for fall 2020, but maybe slightly delayed due the recent that also we have.
Okay, and buying grown to advise us on all the various covert 19 release programs and have created a news letter to keep our licensees and form a best practices as it relates to these programs. Additionally in 2019, we developed and launched successful collaboration with target for their 20 year retrospective Sesame Street.
Great for their Fiftyth anniversary and with new balance at GBC also we're currently working on a capsule collection with crayola as well as a collaboration between Halston and studio 50 for both of which we hope to launch in 2021.
And our wholesale apparel business, our design merchandising and sourcing teams continued their strong performance in 29 team, especially with the execution of our products.
Based on our new collections and excellent sales team performance, we were able to place our brands in 12, new retail accounts, including Saxon Macy's in the United States.
Blasio in Mexico, and successfully launched our C. Wonder brand Oh, Walmart Dot com in February of 2020.
We had great momentum in our hotel business before the covert 19 pandemic hit as all based on our plan and our strong order book, we were showing sales growth in access at 40% at 2020 as discussed while our wholesale business will be impacted and 2020, we believe we are.
Well positioned to resume this level of growth going forward as retail stores reopen and sales normalize.
In our wholesale and E commerce jewelry business, we have been focused on new collections under our Judith Ripka brand in order to bring more contemporary and trend right styles to market, while maintaining the Judith Ripka brand identity.
New collections.
Our all design than three D. and leverage consumer insight testing in order to determine the winning styles and inform merchandising in inventory purchasing decisions. We are extremely advanced in our integrated technology platform are fine jewelry and have successfully brought four new collections to market. Since we took back the license from our licensee with.
More in the pipeline to be launched by June.
We have received significant positive response from these collections from both consumers and industry insiders. Finally, we continue to see stronger than our E. Commerce business, we more than doubled our business in 2019 versus 28 in the business continues to show strong growth potential and 20 Twond and.
Conclusion.
Through our omni channel approach, we have positioned ourselves with the presence in all forms of distribution. So that we can reach our customers everywhere. They shop. We ended the year, having completed the operational transition of our business to a vertical consumer products media technology based operating company with core expertise and women's.
Sportswear and dresses fine jewelry and home products and maintained a strong balance sheet.
Our people our brands and our strong balance sheet, our our strength, we're doing everything possible to come through the cope with 19 events. So that we emerge from it stronger now I'd like to turn the call over to Jim to review our financial results for 2019, Jim.
Thanks, Bob and good evening everyone.
I will briefly discuss financial results for the quarter and your ended December 31st 2019. Please note that our financial results are described more fully.
When you report on form 10-K, which will be far what do you actually see why April 14th.
Total revenue for the fourth quarter of 2019 was 11.4 million net increase of approximately 1.4 million well, what Peter said over the prior year quarter.
I'm really driven by wholesale and E commerce sales.
Second quarter gross profit decreased approximately 23 million to 7.6 million from 7.9 million in the prior year quarter, primarily attributable to lower net licensing.
The operating expenses were 14.6 million and 7.1 million and occurred and probably a quarters respectively.
The increase is primarily attributable to a 6.2 million dollar impairment charge related to the Richter, Brent trademarks driven by the timing of the continued transition this brand from a licensing model to wholesale model and direct to consumer.
The current <unk> also includes $1.3 million a transaction expenses incurred for potential acquisition that we worked on but did not close.
Well the recurring operating costs were generally sweat were down slightly from the prior year quarter.
Oh interesting point its expenses increased by 1 billion tend to prior year quarter attributable to increase in that turned that from our February 2019 acquisition of the Hoffman and Halston heritage trademarks.
GAAP net loss was approximately 6.2 made for the fourth quarter or negative 28 cents per basic and diluted share compared with a GAAP net loss of 23 billion would make a two cents per basic and diluted share could apply your core.
As previously mentioned the current quarters net loss includes $6.2 billion non cash impairment charge.
After adjusting for certain cash and non cash items non-GAAP net income for the current quarter was approximately <unk> point 9 million and non-GAAP earnings per share was five cents per diluted share compared with approximately 1.2 million was seven cents per diluted share in the prior year quarter.
Adjusted EBITDA for the cone costs decreased approximately 22 million well 1.5 million compared with approximately 1.7 noise deploy your core.
Moving down to the full year results.
Total revenue for the year ended December 31st 2018 was 41.79, an increase of approximately six point threemillion, where 80% over the prior year.
With a trend experience for the quarter, increasing total revenue for the current year was primarily driven that wholesale and E commerce sales.
Gross profit for the full year decreased approximately 1.3 million to 31.5.
32 point anyway. The prior year. This decrease was primarily attributable to load that licensee lever there was partially offset the wholesale margins.
Operating cost and expenses increased approximately 8.1 really the reason why don't we seem to current year.
Roughly 28.8 million the partner.
This increase was primarily attributable to the previously mentioned $6.2 million impairment charge for the with the blend trademarks and the $1.3 billion transaction expenses incurred for potential acquisition. Then you worked up within about close.
Interest expense for 2019 increased by approximately <unk> point 5 million compared with the prior year due to the February 2019 terminal the amendment, which resulted in both a point $2 million loss on extinguishment of debt as was hard it's pretty balanced and high interest rates and thus far I recall interest each month.
Our 2019 results also notably include the $2.9 billion gain on the reduction of the contingent obligation.
C. Wonder acquisition back in 2016.
I bottom line for the current year, there's a gap that loss of approximately $3.4 million War 18 cents basic and diluted share compared with net income of 1.9 million or six cents per basic and diluted share in 2018.
After adjusting for certain cash and non cash items non-GAAP net income for the current year mid approximately 4.8 noise and non-GAAP earnings per share was 25 cents per diluted share compared with 6.5 million, yes, 36 cents per diluted share in the prior year.
Adjusted EBITDA for the current year 7.1 million compared with 8.1 related to prior year.
As mentioned earlier by Bob our yearend resulted in adjusted EBITDA was impacted by one time scheduling conflicts with the availability of at QVC on your town during December as rose at C. Wonder break launching a Walmart and spree 2020, rather than this plan for fall 2019.
As a reminder, non-GAAP net income non-GAAP diluted EPS and adjusted EBITDA, a non gap on what are the terms.
Please press release as well as our annual report on form 10-K present, a reconciliation of these items with the mostly directly comparable GAAP measures.
Now I'd like to turn to our cash position.
As of December 31st 2019, the company had an unrestricted cash of approximately 4.6 million compared with total cash of approximately 8.8 million at December 31st 2018.
This $4.2 million decrease unrestricted cash was primarily attributable to investments in technology, including New York City, and PRM systems of approximately $1 billion.
That's the new brands, including the Halston Heritage brand and Maghaberry brand totaling 1.7.
Approximately $4.7 million a debt principal payments during the year.
Which these were offset by approximately $3.5 million of cash flow from operations.
Looking at our debt.
December 31st 2019 total liabilities were approximately 44.7 billion, which includes 18.8 billion of term debt.
Pointenoire contingent obligations.
$7.5 billion operating lease obligations.
And $7.1 million with net deferred tax liability.
Oh these amount the repayment contingent obligation is Joe required to be paid shares of the company stock.
At December 31st 2019, total current liabilities, we mourn 28 million inclusive of approximately $2.3 million current portion of long term debt.
And 1.8 annoying other current portion of operating lease obligations.
Working capital at December 31st was approximately 1.5 million, excluding the current portion of lease obligations and any contingent liabilities payable in stock.
Compared with 10.7 going at December 31st 2018.
At December 31st 2019, or 20 bank debt net of cash was 14.2 billion or two times are just even after the test year.
Finally, as Bob mentioned, we're taking appropriate actions to reduce our cost manage inventory conserve cash and by the current economic and market uncertainties brought about by the Colgate 19 pandemic.
In addition, we've just recently restructured and refinanced all she turned out to allow to reduce principal payments you probably at least in 2020, which will provide us with additional flexibility to run our business effectively he was coming warrant.
And with this I would like to turn the call back over to Bob Bob.
Thank you Jim This concludes our prepared remarks operator.
Thank you ladies and gentlemen.
Well now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad you work your tone acknowledging yarn request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too well.
Pause for a moment as colors join the queue.
Our very first question comes from John Morris, but Davidson. Please go ahead.
Thanks, Good afternoon, everybody in hope everybody safe and well.
Just you know looking how.
I had in and over the valley is the curve in crisis here.
No matter.
Obviously, we don't know how long that's gonna be but if you're looking at your long term gross margin target I'm trying to get a feel for where you would expect that to settle out a in terms of your target.
Where are you would see that coming Oh.
Here are two years thanks.
I'll take that one John it's Bob how are you Hey, Bob your yes, good. Thank you.
And healthy so.
We we don't.
Generally our approach to margins is we we tend to restructure our purchase orders with a high I am you that we offer our retail partners.
We don't see a lot of dilution as a result with doing that of course are going in wholesale margins are lower but our strategy has been to offer our retail partners enough to cover what we think will result in final margins for them.
[noise], how that plays out through the rest of the year I think that remains to be seen a lot of this will depend upon you know how long. This goes on how how long will that retailers need to remain closed.
As as I did say on on the call we are experiencing some cancellations.
Even with the cancel orders we've been able to push a lot of the product Fort worth to June July August with our partner. So we've been working nicely with a majority of our retail partners. So I think it's a little early to tell what the real margin compression.
I will be through the year I think it really depends upon.
What happens.
And how long this goes on.
Great. That's helpful. And then and then my follow up is.
Longer Burger and prior to the disruptions. It sounds like you all were off on a good start with that acquisition just want to know it just wanted to get a little bit of extra color from you on.
Oh that had ramped up relative to your expectations with what the high points been a thus far prior to the disruption.
Tim or whatever it is an interesting opportunity for this moment in time, because as you know it it's a peer to peer model, where a test people sell products for us and all of them are an independent contractors. If you will actually there their members of the long covered or family.
That's what we call them.
And in times like this.
People are often looking for ways to earn additional income and these kinds of businesses tend to do well in these kinds of cycles.
The the launch was very successful it exceeded our acts expectations in terms of sale.
We are about to launch within the next 30 days that recruiting module for.
The former longer Burger sales associates to sign up.
And through this module, we can track them and what they're selling and pay commissions and we we feel very optimistic that we'll be able to recruit.
I wasn't a.
Form or 77000 person sales force that they had onto the new platform. We continue to low new products every day.
If you go to the site you can see the kinds of things that we're offering the customers and the members there it's primarily home products.
We have offered a small selection Judith ripka jewelry to this family of longer Burger cells.
And then man so we'll see you know how our other brands translate onto this platform overtime, but so far so good we're very excited about this this session.
Great. Thank you.
Our next question comes from Walter Schenker with Mass partners. Please go ahead.
Hi, I was pleased to see along with many other companies pick so brands is.
Producing compensation during this very drawing period could you give us some sense just thinking about the cost structure.
What type of percentage change there might be if not for the broadly at least the top few executives.
So we we.
One we reduced.
2019 bonus income to senior executives that was payable.
At the end of March and two we made an across the board reduction of all employees, including our on air gas.
We will continue to look at this based upon where we're forecasting our cash flows and the good news for us is.
75% or approximately 75% of our overhead is variable and we will adjust as needed but based on.
The cash flow analyses that we've been looking at a we've made the appropriate level of cuts across the board and treated everyone is fairly is absolutely we could.
Okay. Thank you.
Thank you.
Once again, if you have a question. Please press Star then one.
There are no further questions at this time I will now turn the call back over to Mr. Dorn for closing remarks.
[noise], ladies and gentlemen, thank you all for your time. This evening. We greatly appreciate your continued interest and support next L brands. The retail industry overall continues to be challenged and recently this business got part or do the covert 19 pandemic. We believe the challenges will continue for the next.
Several years as perhaps retail consolidation store closures continue and or accelerate notwithstanding. These challenges. We continue to believe that excels infrastructure makes us an industry leading platform both from an operational as well as a technological standpoint and that we are uniquely positioned to capture significant market.
We are doing this enormous time disruption as always.
And most.
Importantly, now stay fit well and be healthy.
[noise], ladies and gentlemen that does conclude our conference call for today you may disconnect your lines and thank you for participating.
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