Company Overview
Xcel Brands, Inc. (NASDAQ: XELB) is a dynamic media and consumer products company that has successfully navigated the rapidly changing retail environment by building a diversified portfolio of lifestyle brands and leveraging its expertise in livestream shopping and social commerce.
Founded in 2011 with the vision to reimagine shopping, entertainment, and social media as one, Xcel Brands has a rich history of acquiring and managing iconic consumer brands. The company is engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products. The company's brand portfolio has evolved significantly since its inception, starting with the wholly owned Halston, Ripka, and C Wonder brands. In 2019, Xcel acquired a 50% ownership interest in the Longaberger brand and a 30% noncontrolling interest in the Isaac Mizrahi brand. The portfolio also included the wholly owned LOGO by Lori Goldstein brand from 2021 to 2024, when it was divested.
Strategic Evolution
Xcel Brands' strategy has evolved over the years, transitioning from a wholesale-licensing hybrid model to a pure-play licensing business. This strategic shift, dubbed "Project Fundamentals," has significantly reduced the company's operating costs and risk exposure, positioning it for sustainable growth in the years ahead. The restructuring plan implemented in 2023 included entering into new licensing agreements and joint venture arrangements with various business partners. As a result, the company was able to reduce payroll costs by $6 million and other operating expenses by $9 million on an annualized basis compared to 2022.
Financials
The company's financial performance in recent years has been marked by both challenges and progress. In 2020, Xcel recorded a net loss of $13 million, including a $13.1 million impairment charge, as it navigated the impact of the COVID-19 pandemic. In 2022, the company recorded a net loss of $5.4 million, which included a $20.6 million gain on the sale of a majority interest in the Isaac Mizrahi brand offset by other charges. In the fiscal year 2023, Xcel Brands reported revenue of $17.75 million and a GAAP net loss of $21.05 million, reflecting the impact of the COVID-19 pandemic and the company's ongoing transformation. The company's operating cash flow for 2023 was -$6.55 million, with free cash flow at -$6.65 million. However, the company's Adjusted EBITDA for the year improved by $6.8 million to negative $5.7 million, signaling the success of its cost-cutting initiatives.
The second quarter of 2024 saw a continuation of this positive trend, with Xcel Brands reporting net revenue of $2.95 million and a net income of $0.2 million, compared to a net loss of $3.5 million in the prior-year quarter. This improvement was driven by a 16% year-over-year increase in net licensing revenues and a 40% reduction in direct operating costs and expenses. The company's operating cash flow for Q2 2024 was -$0.27 million, with free cash flow at -$0.38 million.
For the first six months of 2024, Xcel Brands reported a net loss attributable to its stockholders of $6.1 million, compared to a net loss of $9.1 million in the prior year period. The company's non-GAAP net loss was $2.1 million, or $0.10 per diluted share, for the current six-month period, compared to a non-GAAP net loss of $5.6 million, or $0.28 per diluted share, in the prior year period. Adjusted EBITDA was $1.6 million for the current six months, down from $3.3 million in the prior year period.
Brand Performance
The company's diversified brand portfolio has been a key factor in its resilience. While the divestiture of the Lori Goldstein brand in the second quarter of 2024 resulted in a decrease in total revenues, the growth of the C Wonder, TowerHill by Christie Brinkley, and Halston brands has helped offset these declines.
The launch of the TowerHill by Christie Brinkley brand on the Home Shopping Network (HSN) in the second quarter of 2024 exceeded the company's expectations, with sales surpassing the plan by 40%. Additionally, the C Wonder brand on HSN continued to perform well, with second-quarter sales exceeding the network's plan by 6%.
Future Prospects
Looking ahead, Xcel Brands is optimistic about the future growth prospects of its brands. The company expects the Halston brand, which was licensed to G-III Apparel Group in 2023, to start contributing to its revenue in the coming quarters as G-III ramps up its product offerings. Furthermore, Xcel Brands is exploring new opportunities, including the launch of an additional celebrity designer brand and a food and kitchen products brand on HSN.
For the second half of 2024, Xcel expects the C. Wonder brand sales on HSN to achieve over 60% year-over-year growth, with strong growth expected to continue beyond 2024 on HSN and at other retailers. The company also expects to double the Tower Hill by Christie Brinkley brand revenues in 2025 compared to 2024. Xcel anticipates announcing the launch of another celebrity designer brand on HSN before the end of 2024 and another food/kitchen products brand in Q1 2025.
Digital Expansion
The company's foray into the burgeoning short-form video and social commerce market through its 30% ownership in ORME Live, Inc. also holds significant promise. ORME, which launched in April 2024, is positioning itself as a leading platform for brands to connect with consumers through engaging video content and social commerce features.
Liquidity
As of June 30, 2024, Xcel Brands had a debt-to-equity ratio of 0.13, cash on hand of $0.92 million, and a current ratio of 0.79. The company's quick ratio stood at 0.72. In October 2023, Xcel entered into a $5 million term loan agreement with Israel Discount Bank of New York, providing additional financial flexibility.
Despite the challenges faced by the retail industry, Xcel Brands has demonstrated its ability to adapt and thrive. The company's diversified brand portfolio, cost-saving initiatives, and strategic partnerships have positioned it well to capitalize on the evolving consumer landscape and deliver long-term value for its shareholders. Xcel expects to achieve positive quarterly EBITDA in the back half of 2024 as licensing revenues grow and the cost structure is optimized.