- After failing to post its most recent quarterly financial report on time, Sequential Brands Group fell out of compliance with the Nasdaq, according to a securities filing. The company plans to file its 10-Q by June 4 and has several months to regain compliance.
- The brand specialist has been churning through executives amid an ongoing search for strategic alternatives to help pay off its debt. The company's current president and CFO, meanwhile, have received retention bonuses totaling more than $1.5 million between them.
- Sequential Brand lenders Wilmington Trust and Bank of America, have waived defaults for the company over its late financials and extended deadlines, on top of earlier waivers in recent months.
From the outside, Sequential Brands — which owns the Jessica Simpson, Joe's Jeans, And1 and Ellen Tracy brands, among others — looks like a company under duress.
Along with its quarterly, Sequential earlier struggled to file its 10-K on time. In doing so, the company cited negotiations with lenders, its evaluation of "strategic alternatives" — including the possible sale of brands or sale of the company — and an earlier waiver of loan defaults.
When the company did file its annual report in April, the document wasn't pretty. The company noted it has been unable to comply with certain covenants in its debt agreements that "creates a material uncertainty" and "substantial doubt" about Sequential's ability to survive as a "going concern." The company also signaled it could be forced into bankruptcy if lenders demanded all of its debt to be due and payable.
The company carries net debt of $452.3 million. Paying that down is made difficult if not impossible by Sequential's performance. Sales in 2020 were down 11.6% to $89.8 million while the company racked up a $45.1 million operating loss.
There's also instability in the company's leadership ranks. Since the fall, the company has lost a CEO, a senior vice president of finance and a (recently appointed) executive chairman, along with multiple board directors. Under an agreement with Wilmington Trust, the lender gained the right to appoint a majority of Sequential Brands board members after April. In advance of the bank taking over, four board members resigned, including Martha Stewart, whose namesake brand Sequential sold in 2019 to Marquee Brands.
Sequential's retention bonuses to its CFO and president can also be read as a bad omen, given that such bonuses are routinely paid to executives in advance of a bankruptcy, which disallows retention bonuses without performance incentives attached.
In its quest to pay down debt and gets its finances under control, Sequential has sold one brand so far this year. In April, it announced it made a deal with BBC International to sell it the Heeling Sports brand for $11 million. The company immediately thereafter paid several million dollars to its lenders.
The namesake of one of Sequential's biggest brands, Jessica Simpson, is reportedly looking to raise the money to buy it back from Sequential after selling it in 2015.