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  • Nick Monjo

Naked Gives Up More Shares To Buy FOH

Naked Brand Group Limited announced it had acquired FOH Online Corp., “the exclusive licensee of the Frederick’s of Hollywood brand for global e-commerce business,” at a price of $18.2 million.

In completing the previously proposed deal, Naked paid substantially more, giving up many more shares of its own, than had originally been suggested. Naked has operated the online business since 2015.

The acquisition, as discussed in an April 27, 2018 SEC filing, priced the deal at $17,720,979 and involved only 1,304,917 shares of Naked stock. That arrangement used a share price of $6.30. Naked’s shares closed on November 14 at $1.13.

In announcing the deal on November 15, Naked described it thusly: “The purchase price was $18.2 million, consisting of approximately 3.8 million ordinary shares of Naked priced at $2.20 per share and the forgiveness of $9.9 million of long-term debt held by Naked.” The difference in the current share price and the substantially higher share price mentioned in the deal, was not discussed in the press release.

Naked explained, “the acquisition of FOH will secure the revenue Naked currently books under a sub license with FOH. As a result of the acquisition, Naked will control FOH’s exclusive license with the brand owner, Authentic Brands Group, which runs through 2020 and may be extended at FOH’s option through 2070.”

The company continued, “the Frederick’s of Hollywood e-commerce business generated net sales of approximately $20.0 million for the trailing twelve months ended June 30, 2018, a 22% increase as compared to $16.5 million for the trailing twelve months ended June 30, 2017.”

Looking ahead, “management expects the Frederick’s of Hollywood e-commerce business to generate $25.0 million in revenue for the fiscal year ended January 31, 2019, achieving double digit sales growth compared to the fiscal year ended January 31, 2018 and representing a positive contribution to the company’s overall performance.”

Even at $25 million in sales in 2019, Frederick’s would be a shadow of what it once was. Founded in 1947, Frederick’s of Hollywood, operating over the years as both a public and private entity, peaked before end of the millennium. As a private entity in 1999, annual sales were reportedly about $150 million, generated from store and catalog sales. The following year, operating around 200 stores, it filed for bankruptcy. Improving its financial status, Frederick’s eventually went public in 2006 and then was acquired by the Harbinger Group in 2013. For the 12 months ending July 27th, 2013, Frederick’s reported $86.5 million in sales.

Over the years, Frederick’s gradually closed stores and reduced the number of catalogs it was printing. By the end of April 2014, it was down to about 94 locations. Under Harbinger more stores were closed and reliance increased on the internet. In March of 2015 it listed 82 locations, and finally in April of the same year it again entered bankruptcy and all the remaining locations were shut for good. Authentic Brands Group then acquired the brand and Naked has since been operating the online store.

Naked CEO Justin Davis-Rice emphasized the importance of the brand in the latest press release. “The Frederick’s of Hollywood e-commerce business is an ideal fit with Naked. We are pleased to see that Frederick’s of Hollywood sales have grown at such a rapid rate in response to key improvements made over the last year. This is a clear indication that the strategic pivot to make Frederick’s of Hollywood a mobile platform with multiple enhancements is not only driving improved customer retention, but also new sales. We believe the acquisition provides a strong platform to drive the next phase of growth of our e-commerce business and offers key opportunities for future operating synergies with our extensive wholesale and retail distribution channels.” — NM


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