Xcel Brands Inc. saw third-quarter profits fall, but managed to beat Wall Street’s adjusted earnings-per-share estimate by 3 cents.
For the three months ended Sept. 30, net income fell 54.5 percent to $30,000 or 0 cents a diluted share, compared with $66,000, or 1 cent, a year ago. On a non-GAAP basis, net income was flat at $1.4 million, or 8 cents a diluted share, compared with 11 cents a year ago. Wall Street was expecting EPS of 5 cents for the quarter. Total revenues rose 35.8 percent to $7.3 million from $5.4 million. Revenues included a 35.5 percent increase in net licensing revenue to $7.3 million and an 80.8 percent gain in e-commerce sales to $47,000. Wall Street was expecting revenues at $8 million.
Robert D’Loren, chairman and chief executive officer, in a telephone interview said, “EBITDA [earnings before interest, taxes, depreciation and amortization] was flat quarter-to-quarter [owing] to significant investments in our brands H by Halston and C. Wonder. There’s a bit of a disconnect in the time from when we start the design process, from research to sourcing and production, and then go to launch in the stores.”
In the third quarter, the firm uplisted its shares to the Nasdaq Global Market and completed a public offering that raised $16.1 million of equity. Xcel also completed the acquisition of the C. Wonder brand. The H by Halston brand also became available on QVC.
Looking ahead, the collaboration Xcel has with Hudson’s Bay Co. is promising. That partnership, inked in September for the Hudson’s Bay and Lord & Taylor nameplates, involves a new business model set up as a Quick Time Response program.
The program has Xcel designing and managing the manufacture of product for four of the company’s brands that include IMNYC, which is designed by Isaac Mizrahi, H by Halston, C. Wonder Ltd. and Highline, a private-label brand targeting the Millennial consumer created exclusively for the program. Quick Time Response is a supply chain model developed by Xcel — with the assistance of Ben Malka and his team at House of Halston — to create ways for retailers to manage inventory in today’s market environment. Hudson’s Bay and Lord & Taylor are the exclusive retail partners for the program for the U.S. and Canada.
According to D’Loren, he’s in discussions with department stores overseas, except in Germany where Hudson’s Bay Co. owns Kaufhof, for similar partnerships for the Quick Time Response program.
So far, three of the collections — IMNYC, H by Halston and Highline — have been designed and are scheduled to hit the sales floor in the spring. “We have been moving very fast. It’s been a herculean task,” D’Loren said. C. Wonder is slated for fall 2016, but could be in spring 2017 instead.
For Highline, the private label will initially show a full women’s apparel line, with men’s possibly in fall 2016. The women’s line will include dresses, sportswear, outerwear and denim. Price points are in the “better zone” at the department store channel, D’Loren said.
He’s eyeing the addition of footwear and accessories for the IMNYC and H by Halston lines for the Quick Time Response program. That begs the question of whether Xcel could be on the lookout for an acquisition in those areas, not unlike what Coach Inc. did with its purchase of the Stuart Weitzman brand earlier this year to obtain in-house synergies for its own footwear line, as well as learnings for the business.
D’Loren acknowledged that he would like to add an accessories brand, either in handbags or footwear, to Xcel’s umbrella. Of less interest to D’Loren are brands related to men’s fashion and brands overseas that have the possibility of being introduced here. Focusing on domestic brands known to the U.S. consumer offers better synergies to Xcel’s existing platform, he explained.
“While we are not aggressively seeking acquisitions, we are looking for brands that are synergistic to our platform, where there is a concentration of fashion that serves the Millennial and Gen X customer, our core strength. That’s really what we’re looking for,” D’Loren said.
And if an opportunistic buy should land in Xcel’s lap, D’Loren said the company has the funding in place. “We don’t need to do another public offering for a new acquisition. The company has $16 million of cash, with very low debt levels,” he said.