The GameStop (NYSE:GME) fiasco has several companies taking advantage of the short squeeze to raise cash. Intimate apparel and swimwear company, Naked Brand Group (NASDAQ:NAKD), is looking to take advantage of the blistering rally by issuing new stock. As a result, NAKD stock is up by more than an astonishing 639% in the past month.
Moreover, the company plans to revamp its operations and execute its e-commerce strategy. Things appear to be moving in the right direction, but there’s nothing concrete to justify its gains at this time.
Naked Brands was granted a 180-day extension by Nasdaq to regain compliance with its minimum price rule. Until Jan. 26, the stock was trading at a measly 40 cents, but it shot up 252% the next day when it announced a new $50 million stock offering.
The delirious market situation has helped lift NAKD stock past the minimum price requirement. However, such measures are nothing more than eye-wash for investors looking for a more apt solution to the problem.
It seems that the company is now realizing the error of its ways and looking to go full speed ahead with its e-commerce plans. Only time will tell how successful they are in turning-around their fortunes.
Strategic Shift Towards E-commerce
In my previous articles about the NAKD stock, I wrote extensively about its one-dimensional business model limiting its growth prospects. The company failed to recognize the mounting importance of online retail, which stagnated its revenue growth. It is a bit late to the party, but the company has now outlined its plans to full steam ahead with its e-commerce plans.
Chairman Justin Davis-Rice states that the goal is to “pursue the development of a single, world-class technology platform serving the intimate apparel industry.”
Furthermore, the chairman talked about the current environment’s challenges in running Naked Brand’s capital-intensive brick-and-mortar legacy business. E-commerce will represent roughly 22% of all global retail sales by 2023. The company’s existing digital business, FOH Online, generates revenues of $20 million in the USA. However, that is just the tip of the iceberg if the company can become online intimate apparel pure-play.
Naked Brand plans to divest its Bendon subsidiary, which enables it to focus purely on its e-commerce business. The divestment will be completed through its sale to a group comprising of the company’s existing management. The group will be assuming liabilities worth NZ$32.5 million after Naked Brand deals with its senior secured credit facility. The company will receive future payments based on Bendon’s profits during specified periods following the closing.
The strategic e-commerce shift is a long time coming and could perhaps become a game-changer for the company. It is too early to comment on the results of this transition, but it is promising nonetheless.
Kickstarting a Turn-around
It has been an incredibly tough 2020 for Naked Brands, and it has done its best to stay alive in such challenging conditions. Its credit has done well to streamline its operations by cutting costs, negotiating its credit facility with the Bank of New Zealand, and brand divestitures. These initiatives have facilitated the running of its day-to-day operations and seemingly steered it out of bankruptcy territory.
The company has recently announced a $50 million stock sale based on a prospectus filed in October. Moreover, rumors suggest that it will be going for another 1-for-100 reverse split, the second in 18 months, in lifting its stock price. However, these measures will result in massive dilution for existing shareholders.
If everything goes well, it should stay listed on the stock exchange and concentrate on its e-commerce plans.
Final Word on NAKD Stock
It’s all systems go for NAKD stock in pulling itself out of its rut. It has taken advantage of the heightened investor enthusiasm to raise funds to embark on its e-commerce endeavors.
With the divestment of its stake in its Bendon subsidiary, it can now focus on being an e-commerce pure play. However, the company has a long road ahead to recovery and needs to prove itself before investors could get interested again.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
