Q4 2021 Xcel Brands Inc Earnings Call
Good morning, welcome to X L brands fourth quarter earnings Conference call. All lines have been placed on mute if anyone should require operator assistance during the call. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. Please be advised that reproduction of this call.
In whole or in part is not permitted without prior written authorization of XL brands and as a reminder, this conference call is being recorded.
I'd now like to turn the call over to Andrew Berger Berger of SM Berger <unk> company. Thank you Andrew you may begin.
Good morning, everyone and thank you for joining US we appreciate your participation and interest and hope that you're all safe and well.
With us on the call today are chairman and Chief Executive Officer, Robert to Laurent Chief Financial Officer, Jim Haran, and executive Vice President of business development and Treasury Seth Burroughs.
By now everyone should have access to the earnings release for the fourth quarter ended December 31, 2021, which went out a short while ago.
And in addition, the company will file with the Securities and Exchange Commission. It's annual report on Form 10-K by April 15th 2022.
The release and the annual report will be available on the company's website at Www Dot XL brands dotcom.
This call is being webcast and a replay will be available on the company's investor Relations website.
Before we begin please keep in mind that this call will contain forward looking statements. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today.
These risk factors are explained in detail in the company's most recent annual report filed with the SEC and.
<unk> 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.
The dynamic nature of the current macroeconomic and geopolitical environment means what he said on today's call could change materially at any time.
Finally, please note that on today's call management will refer to certain non-GAAP financial measures such as non-GAAP net income non-GAAP diluted earnings per share and adjusted EBITDA.
Management uses non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company's results of operations.
Our management believes that these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results and thus they provide supplemental information to assist investors in evaluating the company's financial results.
These non-GAAP measures should not be considered in isolation or as alternatives to net income earnings per share or any other measure of financial performance calculated and presented in accordance with GAAP you.
You may refer to the attachment to the company's earnings release or part two item seven of the Form 10-K for a reconciliation of non-GAAP measures and now I'm pleased to introduce Robert to Lauren Chairman and Chief Executive Officer, Bob. Please go ahead.
Yeah.
Thank you Andrew Good morning, everyone and thank you for joining US I will start today's call with some brief opening remarks, followed by some operating highlights and insights into our business in 2022 and beyond after that our CFO , Jim Haran will discuss our financial results for Q4.
The full year of 2021 in more detail.
We continue to show strong topline revenue growth year over year across virtually all of our businesses.
Right economic headwinds, we encountered in the fourth quarter. We ended 2021 with approximately $38 million of top line revenues, which is $8 5 million or 29% above 2020, and we believe that our growth would have been even stronger if not for TBC warehouse fire in the fourth quarter.
That impacted our TPC apparel sales.
A majority of 2020 one.
Sales growth.
Came from our wholesale and direct to consumer businesses, which is on a full year basis.
Which has on a full year basis generated more thousand before COVID-19 .
19.
We believe our investments in people technology live streaming design product development and supply chain management are now greatly benefiting the company at a time when companies in our industry, including us are dealing with margin pressure due to cost increases in logistics and raw materials.
Of course, we believe that these investments position us well to grow our business. Despite any economic headwinds that may come our way.
Before I discuss our 2021 result.
I'd like to address the significance of the current live streaming opportunity to better explain why we're excited by it and why we believe that we're uniquely positioned to position to leverage this new sales channel for growth in both our longer Burger platform as well as in other.
Is that we are developing.
The longer Burger business is at the forefront of technology, and social Commerce, which we expect will drive the biggest shift in consumer buying behavior. Since the first E. Commerce retailer began selling consumer goods, we have predicted for the past 11 years and were founded with a mission.
To lead the industry and the convergence of shopping entertainment and social media that mission has manifested itself through a shift in consumer buying behavior toward interactive video combined with e-commerce or live streaming over the past year and most recently at the shop.
Talk industry conference industry professionals have discussed the importance of livestream and its implications for retailing, especially as our ability to rely on re targeting and E. Commerce marketing has been impacted by changes in technology and privacy regulations most agreed.
That video went from a nice to have feature for sales and marketing to an essential marketing strategy given this convergence, especially in countries like China, where live streaming sales have grown from just $3 billion in 2017 to over 305 billion in 2021 with nearly.
500 million people buying by our live streaming last year. According to widely published initially reports.
This is all just getting started here in the U S outside of G. D. C. H S N and other linear interactive television network in fact over the past six months, many brand owners and retailers have started researching or searching for solutions for live streaming and major.
Social media platforms that testing their own versions of shop about video.
Over 9 billion in capital was invested in lifestream startups over the past 12 months. According to widely distributed industry reports the big Tech companies will go for it all including Commerce payment processing and entertainment and specialty livestream retailers will emerge and succeed excel.
Excel has deep expertise in how to make livestream video work and scale with a proven track record of over 3 billion in sales in 10000 production hours through interactive T V on television networks around the World and then our own live streaming platforms.
Now imagine a specialized product classification platform focused on home product that is not a single livestream, our shop of all video, but rather a destination, where shoppers could explore scores of curated at home product.
And live videos hosted by authentic artisans home designers and Influencers is always available to view 24, seven to $3 65, all in a place where shoppers can communicate with livestream show hosts and guests ask questions in real time through on screen shot that is visible to all.
One that even allows shoppers who invited their friends and family to join them and communicate directly with each other in real time, and then when the impulse to buy happens the customer simply clicks on one button to purchase without interrupting the video live streamed.
Joe.
Well this type of platform would be extraordinary and the good news for our shareholders is that it not only exist with longer Burger, but is working and is highly scalable excel as a pioneer and industry leader in livestream shopping has re imagine the online e-commerce shopping experience and we.
We can replicate this platform across other brands and various product classifications and categories similar specialist platforms for example, apparel.
In fact, we can and expect that we'll we will assist third party retailers seeking to leverage our expertise and technology in their search for our live streaming solution. We believe that this will help us to better partner with these retailers and selling our products, while serving as a livestream resource for that we.
Back to make some announcements along these lines soon.
Market research, including extensive industry data shows that consumers have grown bored with looking at static images and reading reviews, when making purchase decisions driven by the pandemic consumers have now developed a preference for online shopping over traditional retail in our drawn too thin.
That was social fun entertaining and build communities. This is exactly why live streaming with an industry focus this year is shop talk conference.
Longer burgers, new social shopping and live streaming platform is not only the future of retailing for business to consumer commerce, but also the next.
Level business to business platform for artisans designers and brands through longer burgers home marketplace for unique home products, all supported by technology live streaming and our growing community of over 5000 members members and nano Influencers and 250000 customers that have come to.
Together in just 24 months.
Longer burgers attribution technology allows vendors to leverage a powerful built in affiliate marketing capability.
Through our fast growing base of nano influencers, while creating an attractive income earning opportunity pennies for these nano influencers, who get paid marketing fees for people that view, the longaberger livestream events and purchase products. We expect that this feature and unique home marketplace will dry.
Many more nano influencers to join Longaberger from all over the world producing a flywheel effect and growing the longaberger community nano influencers and customers and product sales.
This platform is also built to address the growing gig economy. According to oxygen more than one third of Americans and started a new side hustle during the pandemic and we're excited with the potential of the Longaberger platform as well as other livestream platforms, we're developing and other specialty.
And vertical with longer Burger up 273% year over year, and our pilot livestream shows for Judith Ripka jewelry performing well, we believe the future is now and we plan to grow all of our businesses this new and powerful sales channel now.
Now I'd like to briefly discuss our business by division and channel distribution.
Our core interactive television business was on pace for a record year in 2021. Unfortunately, one of the T V C warehouses experienced a devastating fire in mid December which significantly impacted the programming of certain shows including a large plan T. S D show, which.
I'll do it in a substantial loss of Q4 revenue. Despite the loss of revenue caused by the fire revenue from our Isaac Mizrahi brand was up 5% from the prior year and our total interactive T V business revenues were up 6% from last year.
We continue to grow certain of our brands on HSN and with international Interactive television channels, we expect that interactive T V will present, a significant opportunity for us in 2022 and beyond with both our existing brands as well as new opportunities that we hope to announce soon finally, we bill.
<unk> Interactive T V is the grandfather of live streaming in the U S. Interactive T V retailers are on the verge of a retail evolution with digital live streaming and we are excited to be at ground zero in this new digital channel with curate as a retail partner.
Turning now to our direct to consumer E Commerce live streaming businesses, our Judith Ripka and Longaberger ecommerce sales were up 24% and 273% respectively compared with the prior year. The number of Longaberger brand stylist or nano influencers that are the driving force.
Of live streaming in this business was up 48% in 2021, we expect this growth rate to accelerate in 2022 now turning to our wholesale businesses first.
Let me start by saying that we believe that this business if managed properly by controlling third party retailer markdowns and promotions door and product allocations management et cetera is necessary for us to be everywhere, where our customers shop, our apparel wholesale business was up over 20.
And 5% for the full year compared with last year, we rightsize our margins heading into 2022 by adjusting retail pricing for inflation without sacrificing product quality in fact, our apparel apparel products are seeing strong sell throughs across the board in 'twenty to 2020 two and has led.
Third to increase distribution of our brands from new retail accounts going to fall 'twenty, two as well as our recent distribution deal. We just signed in the U K. Our plan for 2022 is to continue to introduce great styles that we believe will have significant sales growth and improve margins in our wholesale apparel.
Business and continued to strategically grow our wholesale customer base and drop ship accounts.
Looking more closely at our Judith Ripka wholesale jewelry business. The business was up dramatically in 2021 at over 330% as compared with the prior year our margin in this business remains strong and we expect to more than double sales again in 2022 and summary as.
We closed out our 2022 first quarter, our QVC business is poised for another great year and continued growth. We expect expansion in this business segment and channel both through our existing brands as well as.
Through our new opportunities, including live streaming that leverage our deep expertise with live streaming shopping and our relationships with both QVC and HSN and we expect continued acceleration of expansion of our direct concern or direct to consumer and wholesale businesses.
Driven by great products, and our ability to leverage our investments in infrastructure and systems with a return to profitability for the year.
Overall, I believe 2022 will be a transformative year for X L brands, we entered the year with a strong and compelling platform that is well positioned for both the current and emerging retail environment as it were.
So we have the strongest pipeline of growth opportunities, we've had in our history and I'm excited by the actions we are pursuing to create long term value in the coming quarters and years now I'd like to turn the call over to Jim to discuss our financial results for the quarter and full year.
Thanks, Bob and good morning, everyone.
I will briefly discuss financial results for the quarter and fiscal year ended December 31 2021.
Please note that our financial results are described more fully in our annual report on Form 10-K .
Total revenue for the fourth quarter 2021 was $8 1 million, representing an increase of approximately <unk> 6 million or 8% from the prior year quarter.
This increase in revenue was primarily driven by significant growth in our wholesale and direct to consumer businesses, where net sales grew by $1 million or three 9%, partially offset by a small decline in our net licensing revenue, which was largely related to a warehouse fire QBC.
Prior to the warehouse fire licensee revenue was on track to be up over 15% for the fourth quarter.
For the full year total revenue increased approximately $8 5 million to $37 9 million with 29% over the prior year.
Full year growth in revenue was primarily driven by significant improvements in our wholesale and direct to consumer businesses, including Judith Ripka, Longaberger and wholesale apparel, which brought together accounted for $6 9 million of the total revenue increase and represented a 75% increase from prior yourselves.
The remaining $1.6 million of the year over year revenue growth was driven by licensing activity, including the April 2021 acquisition of the Lori Goldstein brand, which was partially offset by the transition of the H Halston brand to a wholesale supply model.
Gross profit margin from sales declined from approximately 41% in fiscal year 2022, approximately 34% in fiscal year 2021, primarily driven by the show up of aged inventory increased freight costs labor and raw material costs.
This trend was more pronounced in the fourth quarter and heading into 2022, we proactively adjusted our pricing to address the margin pressure caused by inflation and domestic and global economic trends.
Our operating expenses, which were $12 2 million for the current quarter down significantly from $24 million in the prior year quarter, primarily driven by asset impairment charges in the prior year quarter, which were partially offset by a return to normalized payroll cost.
So suite with our newly acquired when we go to brand retail store operations, and higher shipping and warehousing and logistic costs.
For the full year operating expenses were $39 8 million down from $40 4 million in 2020.
In addition, the current year includes higher depreciation and amortization expense primarily related to the Lori Goldstein brand.
The previously mentioned increase in certain categories of operating expenses include our continued investments in growing our wholesale and direct to consumer businesses, which we expect will begin to contribute strongly to our bottom line in 2022.
It is also important to note that 2020 operating expenses reflect the impact of cost reduction actions that we took a response to the COVID-19 pandemic, including temporary reductions of employee compensation and also reflect the benefits of government assistance received through the Paycheck protection program.
Our 2021 operating expenses did not include these items.
Net loss, excluding Noncontrolling interest was approximately $6 9 million for the current quarter were minus 35 cents per share and on a full year basis net loss was approximately $12 2 million or minus <unk> 63.
For sure.
Adjusted EBITDA for the current quarter was negative $3 5 million compared with positive point 2 million for the prior year quarter. Adjusted EBITDA for the years ended December 31st 2021, and 2020 was negative $2 5 million and positive $4 1 million respectfully.
As discussed.
While we saw positive growth across virtually all of our businesses.
Fourth quarter loss was primarily due to the QVC warehouse fire and the fourth quarter and margin impacts of the sell off of certain apparel inventory, both of which impacted our fourth quarter EBITDA.
We believe that a material portion of the fourth quarter of 2020 impacts such as the QVC warehouse fire and the margin impact from source of certain inventory with nonrecurring and were temporary.
So we believe that we have reacted appropriately to the impact of inflation on our margins.
And finally, while the QVC warehouse far continued to have some minor impact to our first quarter sales of interactive TV. We believe that we are past us and would not expect to see any material impact on this for the rest of 2022.
Okay.
As a reminder, non-GAAP net income non-GAAP diluted EPS and adjusted EBITDA, a non-GAAP unaudited terms.
Earnings press release, and Form 10-K present, a reconciliation of these items with the most directly comparable GAAP measures.
Now turning to our balance sheet.
As of December 31, 2021 company had unrestricted cash and cash equivalents of approximately $4 5 million positive net working capital of $7 9 million.
Excluding the current portion of our lease obligations.
Our term debt loans at December 31, 2021 was 29 million and bank debt net of cash was approximately $24 5 million.
Lastly, and in closing we believe based on our forecast for 2022, the company will return to profitability and that we're uniquely positioned for strong growth heading into this new social commerce cycle, where all entered.
And with that I would like to turn the call back over to Bob Bob.
Thank you, Jim Ladies and gentlemen, this concludes our prepared remarks operator.
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Before question Mr. Archie one moment, please while we poll for questions.
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Thank you. It seems there are no questions at this time I will turn the floor back over to Mr to learn for closing comments.
Ladies and gentlemen, thank you all for your time. This morning, we greatly appreciate your continued interest and support next L brands as always stay fit eat well and be healthy.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.