2023-04-03 11:00:59 ET
Summary
- PLBY is divesting Yandy as it pivots to focus on more capital-light and high margins businesses.
- Honey Birdette and the Playboy brand and creator ecosystem will now form the main focus of the company.
- The rights offering to pay down debt was prudent as quarterly interest expense hit a record high of $5.3 million in the fourth quarter of 2022.
PLYBY ( PLBY ) is collapsing with the common shares of the leisure and pleasure company down 85% over the last year. It was never meant to turn out this way with PLBY's public debit through a blank check company initially met with intense enthusiasm and euphoria. Indeed, the commons would spike as high as $60 per share with a market cap north of $2 billion.
PLBY reported fiscal 2022 fourth quarter earnings that saw revenue come in at $68.52 million . Critically, this was a 28.4% decline over the year-ago quarter and is now set against a market capitalization of $144 million.
Bulls might flag a record-low 0.36x price-to-sales ratio as a reason that the selloff has been overextended. However, PLBY is a loss-making and cash-burning company experiencing falling revenue as its liquidity position is eroded and its shares outstanding rise. Average diluted shares outstanding have been growing and reached 73.06 million as of the end of its fourth quarter. This has increased by 24.4% over the last year on the back of initiatives to raise funds. PLBY recently completed a rights offering to raise $65 million in gross proceeds for the repayment of debt.
A Capital Light Model
PLBY held total debt of $278.9 million as of the end of the fourth quarter but has since been able to pay this down by $70 million following the completion of its rights offering. The debt reduction comes as quarterly interest expense hit $5.3 million during the fourth quarter, a new record and up from $4.1 million in the year-ago comp. Playboy has anchored its investment pitch on the opportunities posed by its brand name with management highlighting $346 million of future royalty guarantee payments through 2031. This segment is high cash flow and more recurring and has formed the basis of a floated restructure. PLBY expanded to include a number of brands from Yandy, an online retailer of lingerie, to Honey Birdette, a mainly brick-and-mortar retailer of luxury lingerie.
The company's financials are in a state of flux with management pivoting away from certain business segments to focus on a more capital-light model that focuses exclusively on Playboy and Honey Birdette. Licensing the Playboy brand brought in revenue of $61 million in 2022. The company wants to do 2x this annual amount within the next few years. Yandy is on track to be sold sometime in April with PLBY moving to scale up Honey Birdette to at least 100 stores in the US as well as chase expansion in Europe. The Honey Birdette focus is attractive as this business generated 38% four-wall EBITDA margins in 2022. PLBY is now looking to raise more funds to ramp up growth.
PLBY's financials are in a transient state with weaker revenues on the back of the Yandy divestment set to be countered by higher margin revenue and a lower cost base. The company is also exploring strategic options for Lovers, a sexual wellness chain. Net loss for the fourth quarter was $10.23 million, a marked improvement from a loss of $56.1 million in the year-ago quarter. Operating cash outflow came in at $2.7 million, a decline from an inflow of $5.2 million in the year-ago comp but a material improvement from an outflow of $13.9 million in the third quarter.
Liquidity In Focus
PLBY ended the fourth quarter with cash and equivalents of $31.8 million, down from $70.5 million in the year-ago quarter. Hence, their current cash runway assuming quarterly operating cash burn broadly reflects the fourth quarter stands at more than a year with divestments of non-core business units set to allow the company to raise more cash and reduce overall cash burn through 2023. Lovers was acquired for $25 million back in 2021 and could bring in a similar level if it's disposed of.
Bulls are most likely excited about the possibility of Playboy's creator platform. The business got relaunched in mid-September last year and has grown at a 9% weekly compound annual growth rate since then with a pro forma annualized weekly GMV in excess of $15 million. PLBY stated that they are now approaching monthly cash flow breakeven with their fixed costs being under $500,000 a month.
The core issue facing PLBY remains unprofitability against a market where risk-on sentiment has been entirely inverted on the back of consecutive hikes to the Fed funds rate. PLBY is now addressing this head on and the impacts of the restructuring will be important to watch. Revenue is likely to ebb in future quarters, but the direction of net losses and cash flows is the core metric. I think it's still far too early to initiate a position, but if its restructuring works out, PLBY's potential is strong.
For further details see:
Playboy: Pivoting To A Capital Light Model Could Pay Off