Huge Losses Continue At Naked In Quarter

Huge losses continued at Naked Brand Group in the quarter ended April 30, jumping to $3.19 million, compared to a loss of $2.54 million for the same three months last year.

At the same time, sales rose by just 1.7%, to $455,160 from $447,627, as business at third party ecommerce sites increased dramatically, while department store sales were cut in half.

Naked, a public company, is close to merging with New Zealand-based Bendon Limited, a privately-held firm which claimed sales of about $100 million in 2016. The combined entity is expected to continue as a public company later this year.

According to Naked’s quarterly financial statement, “Increases in sales from third-party ecommerce sites and in sales to specialty and retail accounts were substantially offset by a decrease in sales to department store accounts.” Sales during the quarter to department sales “were approximately $115,600 or 25.4% of total net sales, as compared to 53.6% [or about $240,000] during the same period in 2016. The reason for the decrease in department store sales is as a result of a reduction in sales to Nordstrom, due to the elimination of in-store inventory at Nordstrom stores. In addition, there was a reduction in sales to Bloomingdales and Soma as a result of initial bulk up orders of newly launched women’s products in the comparative period.”

Naked explained that “Net sales through our ecommerce store (www.wearnaked.com) were approximately $80,300 for the fiscal quarter ended April 30, 2017 compared to $89,800 in during the same period in 2016, a decrease of 10.6%. Sales through our ecommerce store accounted for approximately 17.6% of total net sales in 2017 as compared to 20.1% of total net sales in 2016. The decrease in net sales during 2017 is mostly a result of larger ecommerce sales in the comparative period as a result of new product launches and related marketing efforts in that period.”

“Net sales through third party ecommerce sites increased to approximately $71,700 for the three months ended April 30, 2017 compared to $19,100 in the three months ended April 30, 2016, an increase of 274.4%. Sales through these channels accounted for approximately 15.8% of total net sales in the first quarter of fiscal 2017 as compared to 4.3% of total net sales in the first quarter of fiscal 2016. This increase is attributable to new third-party ecommerce accounts added in fiscal 2017.”

The report noted that “Sales to retail and specialty store accounts constituted approximately $93,800, or 20.6% of total net sales in the three months ended April 30, 2017, as compared to $55,500, or 12.4% of total net sales in the three months ended April 30, 2016. Total sales to retail and specialty store sales increased by approximately 69.1% over the comparative year, due to the addition of accounts.”

“During the fiscal quarter period ended April 30, 2017, we sold approximately $91,500 in out of season and overstock inventory through off price sales channels, compared to $42,300 in the three months ended April 30, 2016. Sales to these customers accounted for approximately 20.1% of total net sales in the current quarter, as compared to 9.4% of total net sales in the comparative quarter in fiscal 2017.”

“During the fiscal quarter ended April 30, 2017, men’s products constituted 40.6% of total sales and women’s products constituted 59.4% of total sales.”

In the latest quarter, “gross margin was 22.2%, compared to 31.2%” in the same quarter last year. “The decrease in gross margin was primarily a result of the write off of excess raw materials in the current period and as a result of an increased proportion of off-price sales in the current quarter. In addition, the decrease in gross margin was a result of the reversal of an inventory allowance in the comparative period ended April 30, 2016, as a result of the over accrual of allowances in the prior year end.”

An interesting note is that despite the sizable loss for the quarter, as well as a recent, multi-million dollar infusion of cash from a stock offering, Naked has not been keeping up on its royalty payments to Dwyane Wade, the basketball star and its recently-named creative director. The company made a deal with Wade in 2015 to use his name on a collection of men’s and boy’s underwear and loungewear. Naked admitted that “At April 30, 2017, the company has not made all minimum royalty payments as they have become due and payable under the terms of the agreement, however as at April 30, 2017, the company has not been provided a notice of default by the other party to the agreement. If the other party provides such notice of default at a later date, this could affect the company’s ability to sell certain portions of its inventory on hand and on order.” Naked noted that in addition to payments not made as of April 30, it is also “committed to future minimum royalty payments” totalling $875,000 from 2018 through January 31, 2020. — NM