HONG KONG — Global Brands Group today revealed it would sell its unprofitable China kids business for $20 million, another divestiture for the firm that is pursuing a leaner business model to cope with rising U.S.-China trade tensions and the pressure of higher raw material prices.
On Wednesday, it reported a net loss of $284 million for the six months ended Sept. 30, compared with $26 million in profit for the same period last year. Revenue was down by 4.1 percent to $699 million for the period compared to $729 million the previous year, excluding the North American licensing business sale.
The sale of the kids business to GBG’s controlling shareholders, will take a significant operating loss off the books and create some additional working capital, the company’s new chief executive officer Rick Darling said.
“It leaves us with a very focused business model, a smaller company, but a more nimble company, and something that is much more focused in terms of the ability to now put ourselves back on a growth path,” Darling said. Going forward, its business is divided into three core areas of fashion, footwear and brand management.
On Oct. 29, the firm completed the divestiture of its North American business to Differential Brands Group for an estimated $1.2 billion. GBG plans to issue a special cash dividend of about 28 Hong Kong cents per share after a 90-day reconciliation period.
The sales leave the company more balanced geographically, with 56 percent of half-year revenue from the Americas down from over 82 percent before the sale, and the remaining 34 percent from Europe and 10 percent from Asia.
GBG has also hired a restructuring firm to assist management in implementing plans to reduce operating expenses by $100 million within 180 days, and to speed up design and development with the implementation of technology and by moving sourcing and production closer to needlepoint.
Darling said GBG’s current portfolio of apparel, including Sean John, Spyder, Kenneth Cole, Jones New York and Elie Tahari, footwear brands including Calvin Klein, Frye and Katy Perry, and brand management partnerships with David Beckham, Jennifer Lopez, Playboy, Carrie Underwood and others are all solid and driving growth.
Darling underscored that the firm had been making preparations for the past half year in anticipation of U.S.-China tariffs. GBG began moving the appropriate categories out of China and have reduced the amount of business done in China to 39 percent overall. In footwear, Darling expects to soon have around half produced outside of China.
Compounding that, company chairman William Fung said, is China’s interest in upgrading its value-added industries, which may lead it to shed some of its more labor-intensive industries like apparel and shoes.
“With a 25 percent tariff, it’s very hard to continue in China so you would tend to look for other places for manufacturing,” Fung said.
The major beneficiaries, he believes, will be Vietnam, Bangladesh, India and other developing countries like Myanmar. “The diaspora of this kind of manufacturing will continue,” Fung said.