Global Brands Group is to sell a substantial part of its North American branded business to Differential Brands Group for US$1.38 billion.
The move, announced at the release of its annual results yesterday, will allow it to cut debt, pay a modest special dividend to shareholders and free capital to grow “a more focused business”, the company said. It will also result in about half of its 7000 staff leaving the company.
Global Brands Group is currently carrying about $1.1 billion of debt, much of it related to its 2014 spin-off from Li & Fung and subsequent listing.
The assets to be transferred include licences for Disney, Star Wars, Calvin Klein, Under Armour, Tommy Hilfiger, Bebe, Joe’s, Buffalo David Bitton, Frye, Michael Kors, Cole Haan, Kenneth Cole and the BCBG Max Azria label which it bought last year for $27.4 million after the company filed for bankruptcy.
CEO Bruce Rockowitz said the sale was the outcome of a strategic review of the business.
“We concluded that divesting the portion of our business that has a high present-day value, was the way to move forward. With this transaction, the group will be able to improve our balance sheet significantly and simplify our organisation, while focusing on the less established lines of business where we see high growth potential going forward.”
Subject to shareholder approval, the deal will see Global Brands Group become “simpler, flatter and more nimble”.
The company said that on the branded product side, the group’s European and Asian businesses will remain as before, while its US business will now focus on footwear and its remaining fashion business. Brand Management will continue to be managed on a global basis.
“Looking ahead, we will continue to attract new licenses to our portfolio with a tighter and deeper focus on our businesses,” said Rockowitz. “At the same time, we will continue to improve the efficiency of our existing businesses, delivering synergies across our platforms. In addition, we have embarked on a significant cost reduction program across the organisation and we are committed to improving our cash flow via a combination of tighter working capital management, and even stronger cost discipline.”
Revenue up but write-downs cost
For the year to March 31, Global Brands Group increased its revenue by 3.4 per cent to $4.023 billion.
However sales were impacted by Coach taking its footwear business in-house after their licence expired in June last year, and the cessation of the Quiksilver kids fashion licence when the company declared bankruptcy.
Total margin increased from 28.5 per cent to 31.2 per cent, however operating costs increased by 37.3 per cent to $1.254 billion, driven largely by transition costs for new licenses in men’s and women’s fashion and additional operation expenses for running the new brands.
The group also made one-off, non-cash adjustments in relation to impairments from the write-off of a receivable arising from a loan made by the company, and various intangible assets, which totalled $94 million.
“In addition, taking into account this strategic divestment, the external market condition and business performance, the group performed an impairment test and recognised a non-cash goodwill impairment of $1.05 billion during the financial year,” the company said. That resulted in a net loss of $887 million for the year, however earnings before interest, taxes, depreciation and amortisation was steady at $379 million.