Sequential Brands Group Inc. is taking a hard look at its future.
The brand management firm has a stock market capitalization of just $15.4 million and total debt of $501.7 million, according to S&P Capital IQ, and has been struggling to right that equation in a fast-changing market.
On Monday, Sequential’s board said it is conducting a broad review of strategic alternatives focused on maximizing shareholder value. That could include the divestiture of one or more existing brands, the acquisition of one or more new brands, a stock buyback program, or other initiatives.
The board has hired Stifel to serve as its exclusive financial adviser to help in the process.
At the same time, the company said Karen Murray has stepped down as director and chief executive officer. She will continue to be a senior adviser and assist the company on strategic opportunities. The board has begun a search for a new ceo, but until one is found, Chad Wagenheim, who is 43 and executive vice president of strategic development and operations, has been named president and will assist the company during this transition period.
Sources said Sequential is looking for a ceo with more of a financial background. Murray’s experience is more on the merchandising end. She became ceo of Sequential in March 2017, having previously been president of VF Sportswear, where she oversaw the $1.2 billion global brand Nautica, as well as Kipling.
Sequential’s brands include Joe’s, Ellen Tracy, Jessica Simpson, And1, Gaiam, William Rast, Heelys, Caribbean Joe and Avia. In June, Sequential completed the sale of Martha Stewart Living Omnimedia for $166 million in cash consideration at closing to Marquee Brands LLC. At the time of the Martha Stewart sale, which also included the Emeril Lagasse brand, Murray said one of the primary motivations was to pay down debt. At the time, Sequential’s debt load was $611 million.
However, Sequential brought in far less than it had paid for the Martha Stewart business initially. It purchased the Martha Stewart Omnimedia brand in 2015 for $353 million. But there are other brands in the Sequential stable that could bring a bigger return, notably Jessica Simpson, which has well over $1 billion in retail sales and licenses that include fragrance, handbags, jewelry and home goods in addition to the core apparel brand.
Regarding the review of strategic alternatives, William Sweedler, chairman of Sequential, said, “After having received unsolicited interest for several of our brands from multiple parties, Sequential’s board of directors is engaging in this formal process to ensure that we are evaluating all alternatives to best further the interest of our shareholders.”
The company hasn’t set a timetable for the conclusion of the review and doesn’t plan to comment further or update the market with additional information unless and until the board has approved a specific transaction or otherwise deems disclosure necessary or appropriate. It also said there is no certainty that the review of strategic alternatives will result in the company pursuing a particular transaction or completing any such transaction.
While sources indicated that Sequential still has some good assets in addition to Jessica Simpson, including Joe’s Jeans, And 1, Avia and Gaiam, it now has a management issue as well as a stock price issue. The company’s shares closed down 8.8 percent to 24 cents on Monday.
In this market, it appears that private companies in the brand management sector, such as Authentic Brands Group, WHP Global and Marquee are winning, while the public companies, such as Sequential and Iconix, are hurting.
“The interesting thing for Sequential is that this is not a time to do this in a public company model. The public markets can be fierce. If they’re negative on this business model, it’s hard to win,” said one industry source.
Sources believe Sequential will eventually have to sell off some of its brands. One source suggested the company’s balance sheet is not strained because it still generates cash.
As far as the management change, Sweedler said, “I’d like to thank Karen Murray for her leadership and the contributions she has made during her tenure with the company as ceo.”
He noted, “Chad [Wagenheim] has been and continues to be an integral part of our executive team. With his demonstrated operating expertise, strategic leadership and focus on results, we’re confident in his ability to help lead Sequential through this next phase.”
Reached on Monday, Murray said, “I’ve enjoyed my time at Sequential and the opportunity to be exposed to a different part of the business. I’m looking forward to working with them as a senior adviser as I prepare for my next chapter.”
For the second quarter ended June 30, total revenue from continuing operations was $26.4 million, compared to $33.1 million in the prior year quarter. On a GAAP basis, net loss from continuing operations was $3.3 million, compared with net income from continuing operations for the second quarter of 2018 of $2.2 million.
In a conference call in August, when the firm last reported its quarterly earnings, Murray said the sale of Martha Stewart and Emeril Lagasse allowed Sequential to reduce its debt by 25 percent, or $154 million, and focus its resources on higher-margin brands. She said several of its brands are “experiencing transitions” such as elevating their market position and changing licensees. This includes an Ellen Tracy footwear license and two unidentified partnerships with Jessica Simpson.
Among the highlights she singled out was a memoir by Simpson due out in February, which is expected to give the label a boost, as well as a strong And1 performance at Walmart as well as specialty footwear boutiques. Avia has “experienced recent growth” at Walmart as well, she said, along with China, and Gaiam, whose core is yoga products, is doing well at Amazon and Walmart and its launch of personal-care products at the end of the year in select drugstores is also seen as an opportunity.
In a filing with the Securities and Exchange Commission Monday, the company revealed that Murray will receive a bonus for 2019 based on actual achievement of the board-established financial goals for the year.
In addition, the unvested portion of Murray’s restricted stock units granted upon her commencement of employment with Sequential, representing 33,334 shares of common stock, will fully vest upon the end of the revocation period.
Murray has also agreed to act as a consultant to the company for one year, for which she will be paid a total of $650,000.