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Cost-Cutting Restores Profits at Global Brands Group

Global Brands Group (GBG) has returned to profit in FY20 following a fiscal year that saw the group lose $250 million in operating expenses—mostly on the back of the aggressive restructuring plan it put into place last year.

In a Nutshell: GBG has been shedding weight ever since it agreed to a deal that transferred a “significant portion” of its North American business to Centric Brands (then Differential Brands) in a deal worth $1.2 billion, completed in October of last year.

In the bargain, GBG kept apparel licensing rights for brands like Jones New York and Kenneth Cole along with footwear rights to Calvin Klein, Kate Spade and Katy Perry, among others.

“You all know that we have gone through a significant restructuring and that this year was really about getting the company right-sized in terms of the operating cost and the margins and putting the P&L at a sustainable level,” Global Brands Group CEO and executive director Rick Darling said during the group’s quarterly earnings conference call with Wall Street analysts.

GBG’s margins improved and operating costs fell by more than 20 percent as the group let go of its failing businesses and worked toward becoming “a more responsive organization,” signs that the right-sizing strategy is paying dividends.

Sales: Revenue fell by 5.2 percent for Global Brands Group in the six months ending Sept. 30, though Darling attributed this loss to the fact that the prior-year comparison included businesses that no longer operate within GBG.

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Margins improved by 600 basis points to 27.2 percent of the group’s total revenue, up from 33.4 percent in the prior period. This improvement resulted from GBG’s focus on reducing off-price sales levels and by strengthening its sourcing abilities, the company said.

“The first way [total margin improved] was the remerchandising of the business and focusing our attention on regular price sales versus off-price sales, and that was a big part of this change,” Darling explained. “And the second part was the move that we had discussed about moving our sourcing out of the U.S. and Europe to be closer to the needlepoint in Asia to begin to impact the FOB pricing for the company.”

Earnings: Following a significant loss in FY19, Global Brand Group’s EBITDA returned to growth in the first six months of FY20. EBITDA was up by 304 percent for a total profit of $80 million, powered by improving margins and shrinking expenses.

CEO’s Take: After Global Brands Group offloaded a large portion of its North American business to Centric Brands, its previous CEO, Bruce Rockowitz, stepped down in order for Darling to be installed as the new face of the group. The FY20 interim was one of the first periods to reflect his choices as a CEO and executive director.

“I’m pleased we have achieved a significant improvement in performance despite the challenging macro environment and changes facing the retail sector globally. This demonstrates our efforts to streamline the Group’s operations have positively impacted our results,” Darling said.

“It is encouraging to see the progress we have made in driving forward the group’s transformation,” he added. “At the half-year mark, I’m pleased to share that we have already exceeded both our initial target of $100 million and subsequent target of $140 million in operating cost reduction, which we had originally anticipated achieving by the end of this FY2020. While we continue to restructure and transform our business, our product expertise, unique global platform and channel-agnostic approach have put us on a path to sustainable growth.”