Impairment charges of close to $10 million, mostly related to the impact of the Covid-19 pandemic; weighed on the profits of Apex Global Brands, previously called Cherokee Global Brands. The net loss for the parent company of Hi-Tec, Magnum,Tony Hawk and other brands expanded by 5 percent to $1.3 million for its second fiscal quarter ended on Aug.1, 2020, as a cut of 32 percent in operating expenses could not offset the interest burden. Revenues dropped by 22 percent to $4.4 million, hampered by lower licensees’ sales due to the pandemic, and the non-renewal of certain licensing deals for the Cherokee brand.
The situation is tricky for Apex, which had its senior secured term loans extended forbearance on its $45 million of senior debt through Dec. 31, 2020. However, the deal brought forward the maturity date from Aug. 3, 2021 to March 31, 2021, and the management warned that could result in a default if efforts to find strategic alternatives to provide more liquidity fail. The group also completed a 10-for-1 reverse stock split during the quarter to comply with Nasdaq regulations.
The company said that, while it continues to onboard new licensees for its portfolio of lifestyle brands - it recently signed several new licensing and distribution contracts for Hi-Tec with partners in Europe, North America and Asia – the reduction in retail doors, especially in the U.S., caused a decline in shelf space for licensees’ products. E-commerce remained a bright spot, but did not have a material impact on financial performance as many retail partners’ physical locations have remained open during the pandemic.
The group has taken cost-cutting measures to reduce expenses during the crisis, such as cutting marketing spend, non-essential travel, headcount, and executives’ salaries. Adjusted Ebitda decreased to $2.3 million from $2.5 million for the year-ago period.
Apex has not provided any guidance for the full year due to the uncertainty surrounding the pandemic. It will continue to identify ways to manage costs and improve overall liquidity. On a year-to-date basis, SG&A expenses declined by nearly 30 percent over the prior-year period. Apex said it is also focusing on increased efficiency with the introduction of new technologies, including the development of virtual product showrooms.