Sequential Brands Group, Inc. on Monday said it's formally considering further divestment of unspecified brands in its portfolio after receiving unsolicited offers. The company is also considering, "the acquisition of one or more new brands, a stock buyback program, and other initiatives."
Karen Murray has stepped down as director and chief executive, according to the company's Monday press release. She remains as senior advisor and will assist on strategic opportunities, as the board searches for her replacement. Chad Wagenheim, executive vice president of strategic development and operations, has been promoted to president and will also assist during the transition period, the company said.
In April, the company said it had sold its Martha Stewart and Emeril Lagasse brands to Marquee Brands for about $175 million, with an earnout opportunity of up to an additional $40 million. That sale also allowed the company to reduce its debt by 25% or $154 million, then-CEO Murray said in August, according to a Seeking Alpha Transcript. Jessica Simpson, AND1, Avia, Gaiam and Joe's make up the majority of its business, Murray also said.
In August, Sequential Brands executives had emphasized that the company is in a transition year and taking on expenses that dragged down its overall results.
Sequential's brands are found mostly at department stores and mass merchants like Walmart. During the second quarter, total revenue from continuing operations dropped to $26.4 million year over year from $33.1 million, as the company swung to a net loss of $3.3 million from net income of $2.2 million in the year-ago quarter, according to a company press release. The company closed the second quarter with $9 million of cash, including restricted cash, and $457.7 million of debt net of cash, CFO Peter Lops said on the August call.
"[D]ue to the transition underway that is impacting every aspect of our business, we believe it is premature to provide full year 2019 adjusted EBITDA guidance on today's call," Murray said at the time, adding that the company is nevertheless "energized" by its 2020 plan, which is expected to drive an operating expense base of some $30 million before minority interest. "We feel great about our go-forward strategy and the work we are doing to build a leaner company with a strong portfolio of brands well positioned for future growth."
In a statement on Monday, Wagenheim also touted the company's "strong portfolio of brands, blue chip base of licensees, and solid lender relationships" and maintained that a recently restructured lending agreement and no upcoming debt maturities allow the company to be "fully focused on executing against our plan to drive growth and right-size our expense structure."
Unloading brands is certainly one way to better performance, as vividly demonstrated by VF Corp, which last year spun off its Wrangler and Lee brands into a separate company now dubbed Kontoor. Without the denim business, the company is reaping the benefits of the popularity of its Vans brand: its 2023 target to reach $5 billion in revenue is on track, executives said in July, as they raised their outlook for the year, saying that they expect revenue to rise about 6% to $11.8 billion, up from their previous expectation of between $11.7 billion and $11.8 billion.
But the fierce loyalty enjoyed by Vans at the moment is an outlier in an era when consumers aren't all that willing to cough up much money for apparel, and, when they do, play the field with brands, high and low. In fact, some analysts are questioning Gap Inc.'s plan to spin off its lower-priced Old Navy brand, as well as J. Crew's plot to spin off and go public with its smaller Madewell brand.
As a licensing company, Sequential's adjustments to its portfolio are perhaps easier to make, as long as there's interest in the brands it wants to let go. Board Chairman William Sweedler in a statement Monday said there has been "unsolicited interest for several of our brands from multiple parties."
The company hasn't set a timetable on the matter and a company spokesperson on Tuesday declined to disclose to Retail Dive which brands are under consideration. In its release, the company said it "does not expect to comment further or update the market with any additional information" unless a specific transaction has been approved or the board "deems disclosure necessary or appropriate."