Halston owner Xcel Brands Inc. ended the second quarter debt free after selling a majority interest in Isaac Mizrahi, putting itself in position to pounce on any acquisition opportunities that might pop up.
In a Nutshell: Robert D’Loren, chairman and CEO of the fashion and consumer brands owner and livestreaming company, described to Wall Street analysts Monday how “challenges in the retail environment came suddenly.”
While the “market remains extremely fluid,” he continued, “having strong liquidity levels and greater access to capital is critically important in today’s business environment.”
“We expect to enhance our capital levels in the coming quarters with a new commercial bank working capital line and have maintained our relationship with First Eagle for future acquisition financing,” D’Loren said.
The company ended the quarter with cash and cash equivalents of $10.9 million, and working capital, minus lease obligations, of $16.7 million.
D’Loren said the company “will move quickly, but prudently, to put this capital to work,” adding that it’s “exploring several strategic investments that we believe will continue to enhance our competitive position and provide earnings growth while maintaining a strong balance sheet.” In the current economic environment, “we believe there will be attractive acquisition opportunities as our industry deals with the slowdown we’ve seen in retail in the past and in approaching quarters,” he said.
D’Loren said selling a majority interest in Isaac Mizrahi was a “transformative moment in Xcel’s history,” representing the first time the company has monetized one of its labels.
Xcel gained $20.6 million from the Isaac Mizrahi transaction. It’s receiving $46.2 million in cash, reflecting the 70 percent stake acquired by WHP. Xcel retains a 30 percent minority interest and will continue to manage the brand’s QVC business and serve as the apparel licensee in the U.S. and Canada. About 65 percent of the cash proceeds was used to pay off all outstanding debt, which eliminated $4.5 million of annual debt service expense.
“For the first time since we started the company in 2011, we are now a debt-free company, which provides us with significant flexibility to pursue opportunities that accelerate growth,” D’Loren said.
Xcel also signed a joint venture agreement with WHP Global to develop a “women’s apparel business under the Isaac Mizrahi in the United States and Canada,” D’Loren told investors. The duo will develop a new website for the brand and hone its international presence.
Separately, ongoing supply chain issues in the apparel sector—geopolitical tensions, product delays and factory disruption—also hampered Xcel in the quarter. D’Loren expects the headwinds will continue for the rest of the year.
The company’s wholly owned brands include Judith Ripka, C. Wonder, and LOGO by Lori Goldstein in addition to Halston. It has a controlling interest in Longaberger Licensing LLC and a minority stake in Isaac Mizrahi.
Net Sales: For the three months ended June 30, net revenue fell 21 percent to $8.5 million from $10.8 million.
Revenues in the quarter included a 17 percent decline in licensing revenue and a 27 percent decrease in net sales.
For the six months, net revenue fell 7 percent to $13 million from $13.7 million, which included a 6 percent gain in net licensing revenue to $11.1 million and a 24 percent decrease in net sales to $6.1 million.
Earnings: Net income for the quarter was $9.5 million, or 48 cents a diluted share, against a net loss of $1.6 million, or 8 cents, in the same year-ago period. On an adjusted basis, the loss was was $3.6 million, or 18 cents a diluted share.
For the six months, net income was $6.0 million, or 31 cents a diluted share, against a net loss of $4.1 million, or 21 cents, in the year-ago period.
CEO’s Take: “We have developed a powerful platform and growth strategy supported by our compelling lifestyle brands, differentiated livestreaming and interactive TV capabilities, and strong balance sheet. As a result, we have the strongest pipeline of new projects and opportunities in our history, which is driving our optimism as we look forward to 2023,” D’Loren said.