The quarter wasn’t great, revenue up 9% slowing from +31% as we lap Honey Birdette closing and see organic rev decline. The headline was marred by a $301mm non-cash write down of goodwill. EBITDA missed by $2mm, but at least inflected to positive this Q. So trends still look weak given macro and other operational challenges, but liquidity looks good, the company is putting capital towards growth initiatives, and we are seeing some good incremental reads that we want to across the business. The new initiatives won’t have an benefit on the P&L anytime soon, but the directional reads are net positive.
Licensing. Macro/China demand trends are pressuring licensing revs. But as it relates to consolidating licensing under a master partner to improve the recognized royalty revenue, in Q/A Ben Kohn hinted at in the past few months we have made substantial progress towards a potential joint venture with a sophisticated operator. Ben NEEDS to deliver on this and not just saying it to say it. Yes, the implications are THAT big. The licensing stream is the crown jewel here, and putting it in stronger hands to maximize royalty rate and protect distribution is critical to our call (and likely to his job). Given the implied progress we better see something concrete within 6 months.
SG&A and Liquidity. Liquidity and cost management looks good, company ended the Q with ~$65mm in cash equivalents and still sits there even as the business trends have slowed and the company is investing in the growth areas. $18mm in annualized costs have been cut out. The CFO sounds confident there are cost levers to pull if needed should demand continue to weaken and the company will operate within the terms of the credit agreement. Operating cash flow is targeted at zero as the company continues to invest while managing costs.
Playboy and Honey Birdette Brand Health. Generally good reads here. Playboy e-comm slowed but was still up 58%. Sounds like demand around key holidays and into Halloween was solid. Early reads on Playboy lingerie are positive. Honey Birdette had a solid new line launch. Perhaps most importantly the company is still going to invest to open 2 more stores later this year, which is capital that should see clear returns. Revs aren’t about to accelerate, but we don’t have a read of any brand problem.
CENTERFOLD (Now Playboy Creator Platform) CENTERFOLD is being rebranded under the Playboy name, we guess for now called the Playboy Creator Platform. The company sounds positive about the flexibility of making changes with its new tech stack. Commentary around recent trends on the platform relaunch sound bullish with 70% of creators on average seeing weekly sales growth. The company is now more comfortable onboarding more creators given the product is functioning more as desired. The company flagged the customer acquisition opportunity of the platform should it be successful. We think that is very real in terms of driving monetization of Playboy and HB products, but the platform has to be truly successful first. The anecdote around the success of Lana Rhoades personally created lingerie line is supportive of the opportunity of building, marketing, and selling product around the successful creators.
We think this stock is trading 30-50% below a liquidation value as the market is (quite reasonably) focused on the slowing fundamental trends. As long as liquidity looks good and the brands remain relevant we struggle to see how the TAIL doesn’t bring a much higher stock price. This licensing JV could be a game changer from a cash flow and margin perspective, and again, is critical to our Long positioning on this name.
