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  • Nick Monjo

Playboy May Also Exit Lovers, Honey Birdette

Playboy, as it reported a decline in sales and a big first quarter loss, announced it is “exploring strategic alternatives for Lovers and Honey Birdette,” which could apparently include exiting both of those retail businesses.

Playboy lost $37.680 million on sales of $51.441 million in the first quarter, compared to a profit of $5.543 million on sales of $69.378 million in the three months ended March 31, 2022.

Noting “the continued strong performance of our creator platform,” CEO Ben Kohn stated “we have made the decision to fully exit operating our consumer products businesses and to focus all our efforts on our creator platform and licensing business.” He added, “In addition to selling Yandy a few weeks ago, streamlining operations and reducing costs, we have signed a binding term sheet to outsource our Playboy e-commerce business, and we have also hired bankers to explore strategic alternatives for both Lovers and Honey Birdette as we move to a fully capital light model.”

The company cautioned that it “has not set a timetable for completion of this strategic review process, nor has it made any decisions related to its strategic alternatives at this time and does not intend to comment further on the status of this process. There can be no assurance that this strategic review will result in the company pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms, or at all.”

In the call to discuss the quarter, Playboy’s new CFO, Marc Crossman, hired about a month ago, revealed “Our direct-to-consumer business was down to $12.7 million or 25%.” He continued that “at Lovers, our store traffic is down commensurate with the industry and in the absence of deploying significant sums of money to marketing we’re focusing on lifting our margins and diversifying our product assortment to give us the flexibility to run promotions in-line with our competitors. Regarding margins, we are leaning into our Playboy Pleasure’s line of sex toys, a licensed product.”

“Playboy Pleasure just crossed $1 million in sales and carries roughly 25 points higher gross margins versus our average gross margin and it’s only been in stores for a couple of months. We have a new Playboy Pleasure’s assortment landing in Q2 and are developing another special line for later this year. In the last month of the quarter, we saw an improvement in conversion and average transaction value. And starting in June, we plan to bring our promotional efforts in-line with our competitors to accelerate our revenue growth.”

Turning to Honey Birdette, Crossman explained sales “were down year-over-year for three primary reasons.” First, “we did not run our March promotional event this year. Second, the particularly difficult macro environment in Australia. And third, switching our digital advertising agency, which impacted our online sales or about half of our sales.” He said the company is “planning on running our June sale one week earlier to capture Memorial Day weekend sales.”

Crossman added that Playboy plans to “ramp-up our digital advertising spend in the back half of the quarter,” and revealed that “Meta had blocked our advertising in the first quarter because they deemed it to be sexually explicit material.” While the company had previously announce it would open more Honey Birdette stores this year, the CFO said “given the strategic alternatives we’re exploring, we’re going to pause on opening new stores.”

Near the end of the conference call, and apparently referencing the reversals at the three businesses Playboy has acquired since the end of 2019 (Yandy, Lovers, Honey Birdette), one skeptical analyst asked: “Can I ask you to detail what’s left? And simplistically, what’s the team of businesses you’ll have on the field at the end of it all? What’s the game you think you can win? And if you execute to the game plan, what do equity investors win? Give, you know, paint us a picture of a shiny trophy.”

CEO Kohn responded: “Sure. Let me just paint you a realistic picture of what will be left. What’s left is Playboy. And we’re leaning into that $1 billion brand at Playboy. And specifically, our creator platform will be our hero product. The growth we’re seeing with that warrants that and licensing providing high margin cash flow to support that. That’s what’s left.” ­— NM

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