(Filed Under wholesale Lingerie News). Naked Brand Group sales in its latest quarter grew by $233,746, or 73.6%, over the same period last year (to total $ 551,494). But it also reported another huge loss, $2,362,600, compared to the $3,533,421 it lost in the three months ended October 31, 2015.
“As of October 31, 2016, the company had not yet achieved profitable operations, had incurred a net loss of $8,204,475 and had an accumulated deficit of $54,585,555,” it wrote in the latest SEC filing,
Meanwhile Naked acknowledged a striking lack of cash on hand, as well as several efforts to correct that situation. At the end of October the company had just $44,365 in cash, compared with $4,780,994 as of January 31, 2016. And it admitted that “The Company believes it does not have sufficient cash resources to fund its operations through the fourth quarter of fiscal 2017 (ending January 31, 2016).
In one of the most striking cost-cutting measures, Naked delayed paying the athlete that is promoting its brand. “During the nine months ended October 31, 2016, the company did not make all minimum royalty payments” as they came due to Dwyane Wade, the basketball star, it reported. As a result, Naked “has not fulfilled its obligations under the agreement. Accordingly,” Wade “has the right to cause the agreement to enter into default.” If he does so, “this could affect the company’s ability to sell certain portions of its Wade X Naked inventory on hand and on order at October 31, 2016.” As of the end of the quarter, Naked said it had not received a notice of default “and is currently negotiating settlement of amounts currently due under the agreement. No provision for any losses that might be incurred in the event of a notice of default has been provided” in its current financial statements.
Terms of its original agreement with Wade provide for an additional $1.1 million in minimum royalty payments between now and January 2020.
In another move, Naked “negotiated a hold on the monthly cash retainer” it had been paying, apparently to CAA Sports Consultants (which was not mentioned by name in the latest filing), which happens to represent Wade. CAA had been helping to “identify other corporate strategic partnerships.” Last fall Naked had signed a three year commitment to pay CAA fees “ranging from $10,000 to $20,000” a month.
To bring in cash since the end of the quarter, Naked has sold promissory notes to and received advances from directors and officers of the company, including CEO Carole Hochman and her son, company vice-chairman David Hochman.
For example, in one recent SEC filing, Naked reported that on November 3, David Hochman and another director, Andrew Kaplan, loaned the company “$12,000 and $100,000, respectively,” and were both issued convertible promissory notes to cover the amounts. In another filing, Naked reported that on December 12 it “received an advance of $116,000 from Carole Hochman, the company’s CEO and chairwoman. On December 14, 2016, Ms. Hochman advanced an additional $37,000. The company intends to use the funds to purchase inventory.”
Naked explained the 73.6% jump in sales in the most recent quarter thusly: “Net sales increased as a result of approximately $176,000 in new department stores sales relating to the addition of Bloomingdale’s, Saks Fifth Avenue, Chico’s, and Dillard’s. This increase was partially offset by a decrease in Nordstrom sales for the three months ended October 31, 2016 of approximately $38,000 from the same period in fiscal 2016.”
The mention of Nordstrom has important implications to the discussion Naked included in its report about its “concentrations in the volumes of business transacted with particular customers.” The firm stated, “The loss of these customers could have a material adverse effect on the company’s business. For the three and nine months ended October 31, 2016, the company had concentrations of sales with two customers equal to 33% and 32%, respectively of the company’s net sales (2015: one customer accounted for 40% and 43%, respectively of the company’s net sales). As at October 31, 2016 the accounts receivable balances for these customers was $0 (January 31, 2016: $73,347).”
When it reported results for the year ended January 31, 2016, Naked’s sales to Nordstrom accounted for 41% of its business and it stated “Nordstrom is currently of key importance to our business and our results of operations, which would be materially adversely affected if this relationship ceased.” It added, “Our largest distribution partner is Nordstrom.”
Providing considerable additional detail to its recent activities, Naked also wrote, “During the three months ended October 31, 2016, sales to department stores accounted for approximately 48% of total sales, as compared to 42% during the same period in fiscal 2016. Sales of our women’s products at new accounts have been strong, however these sales were offset by a decrease in our men’s sales from Nordstrom in the current period, as a result of a reduction by Nordstrom in replenishment orders aimed at reducing overstocked inventory.”
“We sell all our collections through our ecommerce store (www.wearnaked.com), which sales channel saw an increase in net sales to approximately $99,586, or 18% of total net sales for the three-month period ended October 31, 2016, from $83,193, or 26% of total net sales for the same period in fiscal 2016, an overall increase of approximately 20%. Our ecommerce sales increased to $264,577 for the nine-month period ended October 31, 2016 from $175,256 for the same period in fiscal 2016, an increase of approximately 51%.”
Naked also stated, “Sales to retail and specialty store accounts constituted approximately 26% of sales in the current quarter, as compared to 16% in the comparative quarter. Total sales to retail and specialty store sales increased by approximately 184% over the comparative quarter, due to the addition of a new men’s account, on a test basis. Although the new retail account was not successful, we expect to add new retail and specialty store accounts as a result of the launch of our women’s collections and expect sales of women’s products to continue to increase throughout the year as a result of the addition of new customer accounts as well as marketing and promotional activities to support these channels, along with our direct ecommerce sales. During the quarter ended October 31, 2016, we sold off approximately $25,000 in out of season and overstock inventory through off price sales channels. Sales to these customers accounted for approximately 5% of total net sales during the three months ended October 31, 2016 and 2015.”
Discussing gross margins during the quarter Naked added, “For the nine-month period ended October 31, 2016, we realized a gross margin of 8.2%, compared to 29.2% in the same period in fiscal 2016. The decrease was primarily due to a large write down of overstocked men’s inventory during our second fiscal quarter, reflected in cost of sales.” — NM
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