Sector financial performance:

This company, who primarily licenses the brands that it owns or presents to retailers or manufacturers/distributors, has been grouped into branding apparel sector in clothing industry.

Unfavourable sales climate/slowing down traffic has caused significant decline in sales and closure of stores among retail and wholesale customers of branding management companies in 2016/17. And the impact has apparently been passed to their supplier of apparels, while one year delayed, as ways such as low renew rate of licensing agreement, increasing write-off of existing agreement, or decreasing royalty revenue related to brand products sales. As data indicated, the comparable royalty/licensing presented an average 6-8% annual decline since 2017.

As sales decreased, companies’ margins also fell significantly. The current typical operating margin of companies is in the range of -4% and 50% with a mean (27%). And while increasing acquisitions, companies are facing large decrease in cash flow generated by their brands in the past several years due to increasing financing costs and shrinking margins.

According our analysis, companies’ enterprise price/EBI ratios are about 11-15 with interest/EBI ratios of 50%.  Enterprise Price / Sales: 2.9 and stock price / sales: 0.6.

                                                                                                    click for more about this industry

Company performance:

The royalty revenues decreased significantly in since 2017 after two years’ slight decrease in 2015 and 2016 due to lose royalty revenue from previous large wholesale license partners such as Target.

First three months of fiscal 2019 compared with2018 (ended 20180505)

The royalty revenues of this company decreased about 20% primarily attributable to transition of wholesaler’s license in retailers in US market offset by acquisition.

Fiscal 2018 compared with2017 (ended 20180203)

The royalty revenues of this company decreased about 14% primarily attributable to transition of wholesaler’s license from Target to other retailers in US market offset by acquisition.

The first six months of fiscal 2018 compared with the same period of 2017

The royalty revenues of this company decreased about 21% primarily attributable to transition of wholesaler’s license to retailers in US market.

Fiscal 2017 compared with 2016

The royalty revenues of this company decreased about 2% primarily attributable to transition of target’s license to other wholesalers in US market.

Fiscal 2016compared with 2015

The royalty revenues of this company decreased about 1% primarily attributable to loss of target’s license in Canada market.

This company’ operating margin is currently about -27% (intangible asset amortization included) down from about 46% of fiscal 2015 as a result of deleveraging of expenses with declining sales and as well of increased expenses related to acquisition.

Stock price

This stock currently has an enterprise price/sales ratio of 2.1 ($0.9). We think that its stock is being relatively overvalued considering that it is not easy for this company to cut operating expenses to offset the deleveraging of decreasing sales.