Filing Reveals Ongoing Losses At Bendon Group

Bendon Group Holding Ltd. has posted significant recent losses, including in the six month period ending July 31, 2017, and in the years ending June 30, 2016 and June 30, 2015.

This and other information was revealed in a 425 page proxy statement recently filed with the SEC by Naked Brand Group, the public U.S. company that is expected to merge with privately held, New Zealand-based Bendon in the near future.

Bendon, whose exact financial situation had not been widely known until this filing, lost 18.5 million New Zealand (NZD) dollars (approximately $13.3 million at to current exchange rates) in the six months ended July 31, 2017, on sales of NZD 59.8 million (about $43.2 million). The SEC filing, which describes many details of the two companies and the merger, also reported, Bendon Group “has continued to incur losses since 31 July 2017 as a result of continued challenging conditions and still not having sufficient inventory necessary to achieve higher sales.”

In the fiscal year ended June 30, 2016 the company lost NZD 20.7 million (about $14.9 million) on sales of NZD 151.0 million (about $109.2 million), compared to a loss of NZD 13.2 million (about $9.5 million) on sales of NZD 138.8 million (about $100.4 million) the year before.

Naked itself has suffered continuing losses, including $10,798,503 on sales of $1,842,065 in its fiscal year ended January 31, 2017 and $19,063,399 on sales of $1,389,414 the year before. In a recent quarterly filing Naked confirmed that as of October 31, 2017 it had “an accumulated deficit of $62,896,457 and expects to incur significant further losses in the development of its business.”

The two companies expect the proposed merger to significantly improve their financial condition. According to the proxy statement Noble Capital Markets, LLC, financial advisor to Naked, analyzed the effects of the merger and projected the sales and earnings of the combined companies as of May 20, 2017. A chart is provided in the current filing estimating that the combined company would, in calendar 2017, record EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $17.7 million on sales of $126.4 million. It projected that this would double to EBITDA of $35.6 million on sales of $202.6 million in calendar 2020.

But Noble cautioned that “although the financial forecast information set forth below is presented with numeric specificity, such information reflects numerous estimates and assumptions that were made at the time it was prepared,” as well as a host of other variables and risks.” It continued, “no assurances can be given that these financial forecasts and the underlying assumptions are reasonable,” noting, “for example, the projections set forth below assume that the Stella McCartney license would continue in effect for the periods for which the financial forecasts are provided, an assumption for which management had a reasonable basis at such time. However, Bendon’s license to use the Stella McCartney brand terminates effective June 30, 2018.”

McCartney launched lingerie in 2008 and swimwear in 2016, but revealed a new licensing partner last summer. The license has been important to Bendon. It contributed 12% of Bendon’s revenue, or approximately $5.2 million (at current exchange rates) to the total sales of NZD 59.8 million (or about $43.6 million) for the six months ended July 31, 2017. Moreover, the license contributed 9% of Bendon’s revenue, or approximately $6.3 million, to the total sales of NZD 96.3 million (about $70.2 million) in the seven months ending January 31, 2017.

The proxy statement explained that for Bendon “The operating profit associated with our royalty, advertising and other revenue is significant because the operating expenses directly associated with administering and monitoring an individual licensing or similar agreement are minimal. Therefore, the loss of a significant licensing partner” the document continued, “without an equivalent replacement, could materially impact our profitability.”

The filing continued, stating Bendon’s “loss from continuing operations is as a result of the Group not having sufficient inventory necessary to achieve higher sales, as a result of suppliers not being able to supply inventory and the finalisation of the transition of its major brand from Elle MacPherson to Heidi Klum Intimates.”

Significantly, Bendon reported that “On 15 December 2017 and on 14 February 2018, the Group’s bank issued letters that confirmed the Group had breached covenants and obligations under their loan facilities as at 30 September 2017 and as at 31 December 2017 and the Bank has expressly reserved its rights under the Facilities Agreement and each other finance document. As at 31 July 2017 there was a total balance outstanding (excluding cash on hand) of NZD $43,800,000. On 16 March 2018, the Bank issued a letter advising the Company that it is supportive of the proposed merger with Naked Brands Group Inc. Furthermore, in contemplation of this said merger, the Bank has agreed with a proposal to provide financial accommodation to the Group on the basis that the Group repays US $20,000,000 (NZD $28,500,000) of the current facilities no later than immediately following the proposed merger date.” Several other conditions required by the Bank of New Zealand are also listed in the proxy statement.

Many details of Bendon’s operations, as well as the structure of the merged entity are included in the filing. For example, it confirms that “Justin Davis-Rice, the executive chairman of Bendon and a director of Naked, beneficially owns 9.8% of the outstanding Bendon Ordinary Shares. As such, Mr. Davis-Rice will own approximately 8.9%” of the merged company. He will also serve as CEO of the resulting firm. Carole Hochman, current CEO of Naked, will be board chairman of the merged entity with 1.8% of the shares. — NM