Xcel Brands Inc (NASDAQ:XELB) reported its first-quarter 2024 earnings, surpassing analyst expectations with an EPS of -$0.06 against a forecast of -$0.11. Despite the positive earnings surprise, the company reported a significant year-over-year revenue decline. The stock experienced notable volatility, closing down 10.5% in regular trading but gaining 5.26% in aftermarket sessions.
Key Takeaways
- Xcel Brands beat EPS expectations with a smaller-than-expected loss.
- Revenue declined significantly year-over-year, highlighting ongoing challenges.
- The stock showed volatility, with a sharp decline followed by a post-market recovery.
- Strategic shifts to an asset-light model and cost reductions were emphasized.
- New product launches with celebrity brands are anticipated.
Company Performance
Xcel Brands reported a challenging first quarter with total revenue of $2.2 million, down $3.9 million from the same quarter last year. Despite the revenue decline, the company managed to reduce its net loss to $6.3 million, or -$0.31 per share, indicating progress in cost management and strategic restructuring efforts.
Financial Highlights
- Revenue: $2.2 million, down from $6.1 million YoY
- Earnings per share: -$0.06, beating the forecast of -$0.11
- Adjusted EBITDA: -$1.6 million, a 50% improvement from the previous year
- Cash and Cash Equivalents: $2.3 million, including $700,000 restricted
Earnings vs. Forecast
Xcel Brands exceeded expectations with an EPS of -$0.06, compared to the forecasted -$0.11, marking a positive surprise of approximately 45%. This performance is a significant improvement over previous quarters, reflecting effective cost management and strategic adjustments.
Market Reaction
The stock experienced a volatile trading day, dropping 10.5% during regular hours to close at $0.4, before rebounding 5.26% in aftermarket trading to $0.358. This movement suggests mixed investor sentiment, balancing the earnings beat against broader concerns about revenue declines.
Company Outlook
Looking forward, Xcel Brands anticipates a return to profitability later in 2024, driven by strategic initiatives such as the launch of new celebrity-branded products and further cost reductions. The company projects positive EBITDA growth, particularly with the upcoming Halston launch and expansion of the C Wonder and Christie Brinkley brands.
Executive Commentary
CEO Robert D'Loren expressed optimism, stating, "We expect to return to profitability in 2024," highlighting the company's strategic shifts and potential for growth. CFO Jim Herron added, "Now that we have rightsized our cost structure, our non-GAAP net income should continue to improve."
Q&A
During the earnings call, analysts focused on the company's strategic direction and potential brand dispositions. Questions revolved around the Lori Goldstein brand's performance and the expansion of the Ormee platform, which is adding 3-5 brands weekly.
Risks and Challenges
- Continued revenue declines pose a risk to future profitability.
- Market volatility and stock price fluctuations may impact investor confidence.
- The transition to an asset-light model requires careful management to avoid operational disruptions.
- Economic uncertainties and potential market saturation in the retail sector could affect growth.
- The success of new product launches is crucial for meeting financial targets.
Full transcript - Xcel Brands Inc (XELB) Q3 2024:
Conference Operator: Without prior written authorization of XL Brands. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul Kuntz from RedChip. Paul, you may begin.
Paul Kuntz, Investor Relations, RedChip: Good evening, everyone, and thank you for joining us. Welcome to the Xcel Brands' Q1 of 2024 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert DeLauren Chief Financial Officer, Jim Herron and Executive Vice President of Business Development and Treasury, Seth Burrows. By now, everyone should have had access to the earnings release for the quarter ended March 31, 2024, which went out this evening.
In addition, the company is filing with the Securities and Exchange Commission its quarterly report on Form 10 Q today. The release and the quarterly report will be available on the company's website at www.excelbrands.com. This call is being webcast and a replay will be available on the company's Investor Relations website. Before we begin, please keep in mind that this call will contain forward looking statements. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today.
These risk factors are explained in detail in the company's most recent annual report filed with the SEC. Xcel does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The dynamic nature of the current macroeconomic environment means that what is said on this call could change materially at any time. Finally, please note that on today's call management will refer to certain non GAAP financial measures, including non GAAP net income, non GAAP diluted EPS and adjusted EBITDA. Our management uses these non GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company's results of operations.
Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results and thus they provide supplemental information to assist investors in evaluating the company's financial results. These non GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share or any other measures of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to Part 1, Item 2 of the Form 10 Q for a reconciliation of non GAAP measures. And now, I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead.
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Thank you, Paul. Good evening, everyone, and thank you for joining us today. I'd like to start today's call with a brief update on our performance for the Q1 and then our outlook for the remainder of the year. After that, our CFO, Jim Haran will discuss our financial results in more detail. As I have previously mentioned, with the discontinuance of all wholesale operations behind us, we have returned to a working capital light core licensing business.
We have made significant headway toward improving our financial performance and operating results. Our total revenues for the Q1 declined year over year given that this was our Q1 in several years with 0 product sales from wholesale activities. Our licensing revenues were up across our brands except for our logo Lori Goldstein brand, which caused royalties to be flat. And our bottom line on a non GAAP basis showed significant improvement. Our adjusted EBITDA for the quarter improved by almost 50% from the prior year quarter As we continue to gain traction and accelerate in future quarters, we expect our licensing revenues to grow and our bottom line results to continue to improve.
We plan to launch our new brand Tower Hill by Christie Brinkley on HSN later this month, followed by the launch of additional categories of products outside of HSN starting this fall. To date, we have received strong interest from potential licensing partners for the brand across multiple categories, including footwear, handbags, beauty and skincare. The C Wonder by Christian Siriano brand is performing well. We expect to see retail sales volume up to about $20,000,000 to $25,000,000 annually in 2024. That's up 100% from last year's retail sales with a goal of over $50,000,000 in 2025, including HSN and other retailers.
We will launch additional new core categories in footwear and handbags in spring of 2025. We also expect to announce the launch of another celebrity designer brand on HSN before the end of this year. We are working with JTV to offer greater product assortments, including our Judith Ripka Couture jewelry products, both on air and on jtv.com. This has the potential to add over 50,000,000 visitors to the Judith Ripka e commerce business and allows for email marketing campaigns to an additional 2,100,000 customers. We look forward to seeing strong sales momentum carry forward through 2024 2025.
As previously discussed, G III is on schedule to launch Halston this fall. We expect them to begin shipping shortly after the Q2. We expect revenues from this license to begin to pick up later this year and grow strongly in 2025 and beyond. Ormee soft launched its video and social commerce marketplace approximately 3 weeks ago. The Ormee team is doing a great job building awareness for the app and onboarding premier brands.
They are pleased with the results to date. As I previously mentioned, this is a joint venture with a technology company in which Xcel owns a 30% interest in this new video and social commerce marketplace. We believe this marketplace has the potential to transform the video and social commerce markets in the U. S. And its growth potential potentially is virtually unlimited.
Based on all of the progress with Project Fundamentals, our strategic plan to get XL back to what made us successful over the years and the organic growth in our brands, we expect to return to profitability in 2024. I should note that our logo Lori Goldstein business was softer than expected in Q1 of 2024 caused by continued scheduling conflicts with talent. We continue to work with QVC and our on air talent to reach a resolution for this. This includes identifying additional on air guests to support the business or a satisfactory disposition of the brand. Also, we are working on launching a robust pipeline of new brands on QVC and HSN and other potential business opportunities as we seek to ensure continued growth in our core live stream interactive TV business.
And now I'd like to turn the call over to Jim to discuss our fan products. Jim?
Jim Herron, Chief Financial Officer, Xcel Brands: Thanks, Bob, and good evening, everyone. I will now briefly discuss our financial results for the quarter ended March 31, 2024. Total (EPA:TTEF) revenue for the Q1 of 2024 was $2,200,000 representing a decrease of approximately $3,900,000 from the Q1 of 2023. This decline was almost entirely driven by the decrease in net product sales to 0, resulting from our exit from all wholesale operating businesses as part of our project fundamentals planned in 2023 2024. Licensing revenue was approximately $2,200,000 in both the current quarter and the prior year quarter.
Licensing revenue was up across our brands except for the Lori Goldstein brand, which caused royalties to be flat. Our direct operating costs and expenses were $4,000,000 for the current quarter, down by $3,000,000 dollars or 43% from $7,000,000 in the prior year quarter. This decrease was mainly attributable to the discontinuance of all wholesale and e commerce activities in 2023, which included reductions in staffing levels as well as related reductions in other overhead costs. With the Project Fundamental initiatives substantially completed last year, going forward, we expect our average direct operating costs to be less than $4,000,000 per quarter. Overall, we had a net loss excluding non controlling interest for the current quarter of approximately $6,300,000 or minus $0.31 per share compared with a net loss of $5,600,000 or minus $0.29 per share in the prior year quarter.
The current quarter's net loss includes a non cash operating cost of $2,300,000 due to asset impairment charges relating to our successful exit and subleasing of our prior office space as part of project fundamentals. On a non GAAP basis, we had a net loss for the quarter of $1,800,000 or minus $0.09 per share, which represents a roughly 50% improvement from the non GAAP net loss of $3,600,000 or minus $0.18 per share in the Q1 of 2023. Now that we have rightsized our cost structure, our non GAAP net income should continue to improve in future periods as licensing revenues are projected to grow. Finally, adjusted EBITDA was negative $1,600,000 for the current quarter, representing a year over year improvement of $1,600,000 or approximately 50 percent from the negative $3,200,000 EBITDA in the prior year quarter. With our new cost structure in place and projected revenue growth, management anticipates achieving positive EBITDA later this year.
Once again, I would like to take this opportunity to remind everyone that non GAAP net income, non GAAP diluted EPS and adjusted EBITDA are non GAAP unaudited terms. Our earnings press release and Form 10 Q present a reconciliation of these items with the most directly comparable GAAP measures. Now turning to our balance sheet and liquidity. As of March 31, 2024, the company had total cash and cash equivalents of approximately $2,300,000 of which $700,000 was restricted. Our net working capital excluding the current portion of lease obligations and deferred revenue was approximately $2,100,000 which we believe is adequate and appropriate under our current licensing plus working capital light business model.
Since executing our project fundamentals plan, our cash usage has decreased significantly and is projected to continue to improve with the launch of Halston by G3 this fall, the launch of Tower Hill by Christy Brinkley later this month and continued growth in our C. Wonder and Judith Ripka licensing businesses. In March 2024, we did a small common stock offering for net proceeds of approximately $2,000,000 This recent capital raise combined with our current working capital position, lower operating costs and balance sheet borrowing capacity provides us with adequate liquidity to meet our obligations as they become due while growing our business. And with that, I would like to turn the call back over to Bob. Bob?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Thank you, Jim. Ladies and gentlemen, this concludes our prepared remarks. Operator?
Conference Operator: We will now begin the question and answer session. And your first question comes from the line of Michael Kupinski with Noble Capital Markets.
Michael Kupinski, Analyst, Noble Capital Markets: Thank you for taking my questions and good afternoon. First of all, can you talk a little bit about Lori Goldstein and how much does that brand account for your total licensing revenue maybe in the latest quarter and for the full year 2023? And then finally, can you talk a little bit about what you mean by options for satisfactory disposition of the brand as a prospect there? What do you mean by that?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Okay. So the L'Oreal Goldsteam brand, Michael, generates about $5,000,000 in top line royalties. And because there's an earn out there with contingent obligation that's booked on the balance sheet of about $5,000,000 the way the deal works is there's a sweep. It doesn't contribute a lot of cash flow to us and we've been concerned about trends in the business and some of the complications of logistics for Lori herself now having moved to Palm Springs and being able to get to Westchester, Pennsylvania to give us the time that we need to really drive the sales. We've been challenged by that.
Everyone is working through it. We are all doing whatever is necessary under the circumstances to keep the flow in the business as good as we can because no one wants to create any issues for QVC with the business. And part of the negotiations are perhaps we would sell the brand back to Lori under satisfactory terms and conditions. And we're exploring all of that now in good faith on both sides.
Michael Kupinski, Analyst, Noble Capital Markets: Thank you. And then in terms of the launch of a Halston, obviously a big event for the company and a key factor to your swing toward profitability. You indicated that the shipping of the product will be after the Q2. Was there a little slippage in that timing of that?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: No. I don't think so. We anticipated initially when we signed the license with G III that they would be launching in spring, but they pushed it out to fall because they're simultaneously launching apparel footwear and handbags and they just couldn't get it all together for the spring launch. They may have already begun shipping some goods. We haven't received any shipping reports from them yet.
Michael Kupinski, Analyst, Noble Capital Markets: Got you. And then can you talk a little bit about Christie Brinkley, the brand there in terms of the number of SKUs that you'd be launching that initially that sort of thing?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: So the Christie launch is a full apparel collection and that launches next week. We have a big press event that will hit simultaneously with the launch of the show. Christy was fantastic in the photo shoot for it And it will be tops, bottoms, sweaters, full collection in apparel. And we are working now across multiple categories for bag shoes, accessories, skincare, beauty and possibly fragrance.
Michael Kupinski, Analyst, Noble Capital Markets: Got you. Final question, I'm sorry for so many. Can you give us an update on the number of vendors for Army at this point? And any particular update on when you might move towards a full scale launch?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: So as far as we know from Army, the pipeline of vendors now is between 3 to 5 per week coming on. We just onboarded Anne Klein. That will be the first of the WHP brands. And we're working with them to analyze which of their brands really works given their model as a licensing company. They don't operate most of the e com sites.
And then we expect other major brands to come on as well over the next 30 days.
Michael Kupinski, Analyst, Noble Capital Markets: Perfect. That's all I have for now. Thank you.
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Thank you, Michael.
Conference Operator: Your next question comes from the line of Anthony Lebiedzinski with Sidoti.
Anthony Lebiedzinski, Analyst, Sidoti: Good afternoon and thank you for taking the questions. So first, I just wanted to follow-up on Lori Goldstein. So Bob, I know you talked about the continued scheduling conflicts. It sounds like it was meaningful for the quarter as the other brands were up. So any way you could quantify, take a stab at trying to share like how much you think this was how much this impacted your top line?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: So we won't know for this year until we until and unless we reach a settlement agreement with Laurie. We are close. I think it's in good shape. Everyone's been acting in good faith. Obviously, we'll have the first half of the year just because of timing to get anything done with Lori.
But I think based on where we are in the discussions, it will be good for us and the shareholders and good for Laurie. That's where we are.
Anthony Lebiedzinski, Analyst, Sidoti: Got you. Okay. All right. And it sounds like from a cash flow perspective, it's not overly meaningful. So it doesn't really take away from your goals to
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: No. It's not. And with all the things that we have coming on with the business doubling and C Wonder and Halston getting launched, Christy getting launched, other things we have in the pipeline because this wasn't a big cash flow contributor. We're happy with where we are in the negotiations with Lori.
Anthony Lebiedzinski, Analyst, Sidoti: Got you. Okay. And then in terms of profitability for this year, I think you said that you expect to be positive EBITDA later this year. So do you mean for 1 of the quarters later this year or do you think you'll be positive EBITDA for the full year? Just wanted to get a little bit more clarification in terms of that.
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: I think it will depend quarter by quarter and quite frankly how fast we see the ramp up in the G3 license. But we expect for the full year, we'll be positive and coming into Q3 and Q4, that's when we're going to see that pickup because that's really when G3 starts to ramp.
Anthony Lebiedzinski, Analyst, Sidoti: So G3, will it start already in July or are we talking about later in the quarter? Like what's the timing, so we just have a better understanding as to how the business will flow as the quarter as the year progresses, I'm sorry?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Yes. They should be shipping now. So we're going to wait for them to send to us their shipping report. But to get in for fall, shipping is starting now.
Anthony Lebiedzinski, Analyst, Sidoti: Okay. Got you. So it sounds like as the year progresses each quarter should be better from both a top line and bottom line perspective. Is that fair to say?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: That's how we see it. Unless there's an adjustment for Lori, top line may change, but we believe bottom line and cash flow will be better.
Anthony Lebiedzinski, Analyst, Sidoti: Okay. That's very encouraging. And then in terms of Orbi, you talked about onboarding 3 to 5 per week. Do you think that perhaps could maybe accelerate as the year progresses as well? Or do you think that's the pace that you'll be happy with if you could continue with that?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: No, I think it will accelerate. For me has been hiring staff and busy people and we're helping them with the bigger brands making contacts for them. But they're my
Anthony Lebiedzinski, Analyst, Sidoti: last question my last question here. So you did a small capital raise during the quarter. Do you think given the state of business that you should be all set or do you project any other capital raises?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: I think we're good for now
Michael Kupinski, Analyst, Noble Capital Markets: and
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: given where we are and unless there's some kind of transaction that we have a need for cash, I don't foresee us doing another equity deal unless there is a need for the capital to affect the transaction.
Anthony Lebiedzinski, Analyst, Sidoti: Got it. Very good. All right. Well, thank you, gentlemen, and best of luck.
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Okay. Thank you, Anthony.
Conference Operator: And your next question comes from the line of Howard Brous with Wellington Shields.
Howard Brous, Analyst, Wellington Shields: So a couple of questions that I have been asked, but not in the depths I'd like them. Or me, how many companies have you signed up? And can you give us some sense of names that have signed up?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: So, Howard, one, we don't have daily reports of Maury. Remember, we own 30 percent of that company. We've invested in it. Ormee is a private company. And they share some information, but not all information with us.
What I can see coming through is they're adding 3 to 5 brands per week now to their pipeline. And of course, as brands come on, then they email those customer databases and recruit users for the app. And at some point, Army will do its own capital raise and then report accordingly so that we all have a little more visibility into the Army business. But there are some things that they're just not reporting on.
Howard Brous, Analyst, Wellington Shields: How many brands have signed up already?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: 9 are on and there's about another 9 in the pipeline. The biggest one that was just put on is Anne Klein.
Howard Brous, Analyst, Wellington Shields: So looking at G3 and the minimum basically guaranteed to you, I'm looking at, if you will, next year's numbers. Is it fair to say that the EBITDA number certainly and directionally is increasing significantly? And could you comment on what people are looking for in terms of EBITDA for next year? And the estimate out there is, call it $11,000,000
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Well, the catalyst for top line and EBITDA are Halston, Seawonder and Christie going into next year. Seawonder is doing incredibly well. It did $12,900,000 in 2023. It's planned at approximately $25,000,000 for this year. We believe it could hit $50,000,000 next year based on the trend that it's on in the release now, handbags and footwear and some other licensed categories.
And Christy, we believe just has tremendous potential. There is another transaction that we will be executing on with HSN this year. It will come in the latter part of Q3, possibly the beginning of Q4 for holiday season. And those will be the catalyst for revenue. And of course, Judith Repka continues to do well with JTV.
They have decided to move all of the full price product to jtv.com, which exposes that product to another 50,000,000 unique visitors per year on Jewelry TV and gives us access to millions of customers for the Judith Ripka e commerce business that they're running. So we're excited about what JTV is doing with Judith Ripka. And those will be the catalyst for growth. We do have other brands that we anticipate that we will be launching going into next year that could be immediate drivers of revenue. We look forward to announcing those as we get closer to finalizing.
Howard Brous, Analyst, Wellington Shields: So is it fair to say the estimate for EBITDA for next year is how concerned, let me ask it that way?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Well, we're standing behind the estimates that are out there, Howard, based on what we see in the pipeline in the business.
Howard Brous, Analyst, Wellington Shields: So effectively you're selling a 1.5 times EBITDA for next year. Is that a fair comment?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: It seems reasonable when you think about where that EBITDA can be. Yes.
Howard Brous, Analyst, Wellington Shields: That's all I have. Thank you. Good luck, Bob.
Michael Kupinski, Analyst, Noble Capital Markets: Thank you.
Conference Operator: Your last question comes from the line of Michael Kupinski with Doble Capital Markets.
Michael Kupinski, Analyst, Noble Capital Markets: Hi, thanks. I'm sorry, just one quick follow-up, Bob. In terms of the new brand you hope to launch, you said that I believe this might be featured on HSN. Will this be can you give us any additional color on that, whether or not it's an apparel brand or will it also be streaming? Can you just kind of give us a little additional color there?
And maybe even some thoughts about how much revenue might generate this year?
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: So it is an apparel brand and it is with a celebrity designer. We don't think it will contribute much this year, Michael, just because of when it's launching. But it will be a contributor coming into 2025. Just based on timing where we are now, it does look like holiday is when it will get out. But we're excited.
It's a great opportunity, great designer, great product. We're not making that product, the licensee is doing it. And our goal is to do more of these at HSN, where each of these brands could be $30,000,000 to $50,000,000 in volume on HSN. That's the goal.
Michael Kupinski, Analyst, Noble Capital Markets: Perfect. Well, good luck with that. Thank you. That's all I have.
Jim Herron, Chief Financial Officer, Xcel Brands: Thank you.
Conference Operator: There are no further questions at this time. I will now turn the call back over to Mr. De Laurent for closing remarks.
Jim Herron, Chief Financial Officer, Xcel Brands: Bob, before you begin.
Michael Kupinski, Analyst, Noble Capital Markets: Yes.
Jim Herron, Chief Financial Officer, Xcel Brands: I just want to let everyone know that we had some technical difficulties getting our earnings release out. I was just informed that they fixed them and the release should be going out momentarily. We did file our 10 Q earlier this afternoon. So apologies for having that release not issued prior to the call. So I just want to let everyone know we had technical issues with the release and now effects.
So sorry about that.
Robert D'Loren, Chairman and Chief Executive Officer, Xcel Brands: Okay. So thank you, Jim. Ladies and gentlemen, thank you for your time this evening. We greatly appreciate your continued interest and support in XL Brands. As always, stay fit, eat well and be healthy.
Conference Operator: Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect and thank you for participating.
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