Naked Brands (NASDAQ:NAKD) has been a difficult investment over the past year. In fact, loyal NAKD stock owners have lost their shirts, as shares have plummeted from $6 to just 20 cents since last October. Zoom out and it’s even worse. As recently as 2017, NAKD stock was still worth $1,000 per share on a split-adjusted basis. Since then, shares are down more than 99%.
Still, traders haven’t given up on the company yet. In August, for example, NAKD stock spiked as much as 48% in one day on news that the company had reworked the conversion feature on some of its bonds. Sadly, that did nothing to address the elephant in the room though.
That being that Naked Brands hasn’t proven that it has a viable business model. Heading into 2020, it had a terrible balance sheet and was running massive losses. Egregious losses in fact, compared to the tiny size of the business. Then the novel coronavirus hit, and an already struggling retailer suddenly couldn’t even use many of its sales channels.
With Naked already facing a dire future in January, it’s nearly impossible to see a path to a turnaround at this point.
Weak Balance Sheet
As of the company’s latest filing from earlier this year, it was almost out of cash. For the period ending Jan. 31 of this year, Naked Brands had less than $4 million of cash. It had many multiples of that in “current assets” such as inventory. But imagine the difficulty in selling your inventory this year at a reasonable price with retail stores closed around the world due to social distancing.
Even in January, the company already had negative net worth, as its total liabilities exceeded its assets. Unlike its assets, which were largely tied up in hard to monetize things, many of its liabilities come due in the near term. This leaves the company, which is deeply unprofitable and not even EBITDA positive, in a deep bind. How do you raise money during an economic downturn when retail stores are closed?
The company did sell off its Naked brand earlier this year to try to forestall insolvency. That’s obviously a blow for a company called Naked Brands to lose its flagship brand. Even so, it’s not clear that this sale raised enough cash to turn anything around.
Delisting On The Way?
We have received no new financial information about the company since the results from the January period, which it published in May. That’s not reassuring, given its weak financial position and the ensuing Covid-19 crisis that has assuredly put even more pressure on the company.
In fact, has only published two news releases since the financial results came out in May. The first warned investors that Nasdaq intends to delist NAKD stock. And the second news release noted that its delisting has been delayed until November to try to give the company more time to turn things around.
But without any concrete financial information, there’s little reason to think Naked will be successful. The company’s financial results were atrocious even before Covid-19. It lost $34 million in operating its business last year. That was in a healthy economy, and also when it still owned the Naked brand. It had less than $4 million of cash heading into Covid-19.
How likely is it that the company is going to survive this storm?
NAKD Stock Verdict
I expect Naked shares to end up virtually worthless. Usually, it’s a pretty provocative claim when someone says that a stock is going to zero. However, that’s not really the case here with Naked. Shares are already trading for just 20 cents each, and the company’s whole market capitalization is less than $10 million.
Barring a miracle here, it’s hard to see how this could have turned around even before Covid-19 devastated the retail sector. And now, it seems like a forgone conclusion that the company won’t have enough financial resources to recover.
In any case, there’s little reason for this to still be a publicly traded company, and there’s no reason for the average investor to be considering the stock. Naked Brands will likely eventually be reorganized in a bankruptcy court to get the best outcome for the company’s employees and creditors.
That outcome, unfortunately, is unlikely to recover much of any value for existing shareholders.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.