It’s difficult to get excited about Naked Brands (NASDAQ:NAKD) because NAKD stock has lost nearly all of its value over the past year. Making that task even more tough is the fact that the company operates in brick-and-mortar retail, which is being disrupted in epic fashion.
Australia-based Naked is a maker of intimate apparel and has some well-known brands, including Frederick’s of Hollywood and Heidi Klum. But NAKD stock has tumbled a staggering 98.9% over the past 12 months.
When a stock sheds more than 98% of its value in a year, it has had plenty of negative catalysts. But in the case of Naked, the retrenchment is all the more alarming because its stock has sunk 38% over the past month.
It was about a month ago that the company engineered a 1-for-100 reverse split designed to inflate its share price. Today it looks like all that reverse split was good for was giving bears the ability to short the shares at a higher price.
The reverse split was necessary because, in August, Naked was granted a six-month extension by Nasdaq to get its stock price back to the $1 minimum required by the exchange operator. Now, despite the reverse split, the shares are once again trading below $1 in early afternoon trading, as they are changing hands for just over 95 cents.
Ill-Fated Deals
Back in 2018, Naked made some acquisitions, adding brands and stores. But the timing of those deals proved ill-fated. Not only was the writing already on the wall back then about online retail eating brick-and-mortar’s lunch, but L Brands (NYSE:LB), the owner of Victoria’s Secret, was in the midst of a major decline, underscoring the erosion of the intimate apparel sector.
L Brands is no Naked, but four years ago, L Brands’ stock traded over $90. Today it’s under $21. What makes the weakness of equities such as L Brands and Naked all the more vexing is that the global intimate apparel market is expected to grow over the next several years.
“The global intimate wear market is estimated to grow at a notable pace, with a CAGR (compound annual growth rate) of 8.1% from 2018 to 2025,” according to Allied Market Research.
Other data points confirm that the sector is still growing, particularly in the U.S.
“In 2018, the lingerie market in the United States was valued at approximately 6.87 billion U.S. dollars and it was forecast to reach a value of 11.36 billion U.S. dollars by 2025,” notes Statista.
It’s true that intimate apparel isn’t growing as quickly as electric vehicles, smartphones, streaming entertainment or some other fast-growing niches. But the fact is that the intimate apparel market is growing, and Naked Brands is doing a lousy job of capitalizing on that growth. The share price confirms that assessment.
Will Real Estate Save NAKD Stock?
Naked, through its acquisition of Bendon, owns 61 retail and outlet stores in Australia and New Zealand, according to the company.
It doesn’t take a mathematical genius to figure out that the combined value of those 61 stores is very likely more than $9.84 million, Naked’s current market cap. Said differently, Naked has tangible assets that are worth more than the current market value of the company, meaning its book value is probably inexpensive.
But the problem for investors is that, when a company gets its back so far against the wall that it’s forced to liquidate real estate, the proceeds from those sales don’t always benefit the owners of its common stock.
Just look at Sears. That ruinous brick-and-mortar retailer sold tons of retail estate, much of it for a pretty penny, but that didn’t help the owners of its stock.
So it’s nice that Naked has hard assets to sell, if necessary, but don’t bank on that being a lifesaver for the stock.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
