Naked Brand Group Ltd (NASDAQ:NAKD) is a company that probably shouldn’t have survived 2020. A global operation consisting of multiple intimate apparel and swimsuit brands, Naked Brand spent 2020 losing money, closing down stores and selling off brands. Shares were worth over $800 at one point in 2018. By 2020 NAKD stock faced de-listing (and much worse) dropping as low as 7 cents at one point. Of course Reddit got involved in the whole situation — because it was 2020. The Reddit effect has been part of the 2021 story as well, with a single-day spike around 250% in January.
I’ll be the first to admit that around this time last year, I was skeptical that Naked Brand Group would survive. Its turnaround plans didn’t seem to be gaining much traction. The pandemic wasn’t helping, either — nothing about the coronavirus was good for swimwear or fancy underwear sales.
However, it feels as though Naked Brand has turned a corner. The company is making real progress in its transition to a pure e-commerce operation. It’s eliminated all debt and has cash on hand. All of a sudden, NAKD stock is looking like an opportunity for an aggressive investor.
Naked Brand Group Was a Mess, But the Pandemic Didn’t Help
You can’t talk about Naked Brand without noting the company’s epic fall. The sad state of Naked Brand’s business was on full display in 2020. The company saw revenue decline 19.5% year-over-year to just $58.5 million. Meanwhile, it lost $33.9 million, topping 2019’s loss of $32 million.
With lockdowns and vacation travel clobbered, the market for swimwear and intimate apparel wasn’t exactly on fire in 2020. The blame for the poor showing can’t be laid entirely on the management of Naked Brand. Whatever the cause, investors paid a price. NAKD stock started 2020 at $1.71 and ended the year at 19 cents. That’s an 89% drop. And it was complicated by Reddit-fanned extremes.
Transformation to a Pure E-Commerce Operation + Healthy Balance Sheet
After talking e-commerce transformation for most of last year, the company appears to be making progress. In addition, it’s cleaned up its debt-ridden balance sheet and solidified its leadership team. On March 29, Naked Brand released a business update. Among the highlights:
“With over $270 million in cash and no debt we are strategically positioned to pursue accretive acquisitions of high growth and cash flow positive businesses.”
In addition:
“Naked expects to complete the divestiture of its Bendon brick-and-mortar operations in the second calendar quarter of 2021, allowing the Company to focus exclusively on the planned rapid acceleration of its e-commerce business.“
What I found interesting is that after the press release announcing the progress on the e-commerce transformation, the healthy balance sheet, the leadership team — plus the addition of a well known finance leader to its board of directors — NAKD stock slipped.
Bottom Line on NAKD Stock
The NAKD stock picture has been muddled by the Reddit effect. That makes it more of a challenge to read trends, although it helps if you avoid knee-jerk reaction to short-term events.
The elephant in the room is that Naked Brand has been losing money for years, and continues to lose money. That’s where two positives will come into play in 2021 and beyond. As the pandemic loosens its grip, we’ll be back to travel, vacations, and in-person dating. That’s going to help spending on intimate apparel and swimwear to return to normal.
At the same time, when Naked Brand’s shift to e-commerce is complete, operating costs are going to be down. No store rent or retail employee costs. Profitability becomes much more realistic.
Try to look past the previous five years — and the disaster of 2020 in particular — and Naked Brand suddenly looks pretty good. It has a well-established portfolio of products, a leadership team that’s getting things done, a healthy balance sheet, and a transformation from brick-and-mortar stores to e-commerce well underway. NAKD stock is a penny stock that has real potential.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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