Intimate apparel maker Naked Brand Group (NASDAQ:NAKD) is struggling to remain listed on the Nasdaq composite as NAKD stock continues to trade below $1. You wonder why the company is in this position since now seems the perfect time for the company to make some dough.
Strict social distancing orders mean a lot of people are at homes and have more time to themselves. Orders should be skyrocketing, but they aren’t.
In its latest earnings release, the company confirmed what many already know; Naked Brand has some deep-seated performance issues. Although the stock traded for $1.63 on June 9, I believe that’s a temporary blip for the embattled company, with regular service to resume soon.
With a minuscule share of the global intimate apparel market, abysmal financials, and fears of delisting, NAKD stock is firmly in the do-not-buy category for me.
A Market That Is Growing and a Company That Isn’t
Let’s be fair; intimate apparel is a pretty niche market. When most people are looking to make ends meet and save enough for essentials, I don’t foresee a large section of the public going shopping for Naked Brand’s products.
That’s not to say the market isn’t growing. Data from Statista shows the global intimate apparel market will grow to approximately $194 billion by 2023. However, considering the company faced a 19.5% year-on-year drop in revenue in fiscal 2020, I don’t believe it will have a sizable slice of that pie of that market.
In detailing its results, the company also revealed that it was looking to divest more of its brands after disposing of the Naked brand in January and build around its Bendon line of products.
Strategic Review
To address these issues, Naked launched a global strategic review of its operations. The press release detailing this tidbit outlines specific cost savings that have come out of this review, but management has said little else regarding where it’s going with this.
CEO Anna Johnson had this to say on the matter:
“Our fiscal 2020 was highlighted by the continuing success of our new strategic direction, finalizing the completion of our transition to a lean, direct-to-consumer business model – having exited unprofitable wholesale channels worldwide and further leaning into our e-commerce and physical store infrastructure.”
I am sure this bit of commentary left a lot of analysts confused. There hasn’t been a change in leadership or direction for the company yet. Yes, they do want to concentrate on an e-commerce business model. But it’s challenging to create this infrastructure overnight and make it viable.
Lastly, the company has secured a $10.85 million credit facility with the Bank of New Zealand, with proceeds earmarked for working capital needs. It’s not uncommon for companies that have high seasonality or cyclical sales to take out loans for working capital purposes. But they are usually your typical mom-and-pop business and not a Nasdaq-listed company like Naked Brand.
However, with a market cap of $4.7 million and fears of delisting looming large, perhaps we are asking too much.
Final Word on NAKD Stock
I believe NAKD stock is headed for the pink sheets or over-the-counter trading. Even if the stock manages to survive by the skin of its teeth the fundamentals remain extremely flawed, as my colleague Josh Enomoto nicely points out in his piece.
It’s never a good idea to play Russian roulette when picking stocks, even more so in the current climate. Naked Brand’s products are failing to entice consumers and it has a negligible share in a growing market. More importantly, it looks unlikely that the company can stave off delisting for a lot longer.
Maybe a better time to look at NAKD stock will be after the strategic review is completed. If there is significant restructuring it may be worth your time. However, the company is working with an outdated model that is unappealing to customers and investors. Tackling these issues is more complicated than replacing a CEO or rebranding a pair of underwear.
If you’ve been holding on to your NAKD stock, sell it now.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. He does not directly own the securities mentioned above.
