Sukin owner’s sales continue to dip as forecasts slashed
The listed owner of skincare brands Sukin, Nourished Life, Flora & Fauna, Go-To Skincare and more today cut its expectations for full-year revenue and earnings figures after second-quarter sales revenue fell ‘significantly below’ internal targets.
Melbourne-based BWX (ASX: BWX), which only started trading as recently as December due to a delay in reporting its FY22 results, says sales revenue for the second quarter of FY23 was just $38.1 million.
As a result, the beleaguered company now expects revenue for FY23 to be in the range of $170-190 million, down from previous forecasts of between $205-230 million. Furthermore, earnings will be roughly half of what was previously expected and should be between $10-15 million – down from between $25-30 million.
For the skincare company, this is extra salt in a wound that opened in the latter half of last year and saw the company post a statutory loss of $335.6 million, including an impairment charge of $322.6 million.
The company blamed a number of factors on the second-quarter revenue figure, including $4.1 million in revenue that was billed in December but recorded in January 2023.
Ongoing cash constraints are also an issue that has challenged BWX’s ability to maintain inventory levels, leading to out-of-stock issues in several lines and affecting sales in its Asia Pacific and digital business units – the latter which includes brands Nourished Life and Flora & Fauna.
BWX says these problems affected the company’s promotional activities, which in turn also adversely affected sales revenue.
Net operating cash flow was in the red at negative $9.15 million – an improvement of $12.72 million over the previous quarter – due to trade losses and payments for capital equipment and trade suppliers. Cash receipts were also lower than expected due to low sales results.
The company says it expects increased inventory levels to reduce to target levels by the third quarter of the current financial year, while out-of-stock issues and repositioning promotional activity are likely to improve within a similar time frame.
Finally, BWX expects to implement its turnaround plans in Q4 FY23 and Q1 FY24 – half a year later than originally planned.
The company is hoping that recent registration approval from China’s National Medical Products Administration (NMPA) will give it some revenue-wise.
BWX received this approval in early January, allowing it to sell 12 Sukin-brand skin care products through wholesale and retail channels in China, rather than relying on cross-border e-commerce channels.
“BWX is now preparing these products for experts to China and sales of these twelve Sukin brand skin care products in China are expected to begin in FY24,” BWX said.
“We expect this initiative to contribute more than $15 million in revenue per year by FY26.”
BWX’s bad skin
Today’s update is the latest in a series of issues for the skincare company, which has been suspended from trading on the ASX for much of 2022.
BWX, which acquired online retailer Flora & Fauna from entrepreneur Julie Mathers in May 2021 for about $30 million and 50.1 percent of Zoë Foster Blake’s skincare brand Go-To Skincare for $89 million in August of the same year, first announced its FY22 results announced in August. December – months after ASX requirements dictate.
The company was not restored to trading until December 20, 2022, after which its shares fell by 52 percent to 30 cents per share. At the time of writing, the company is currently trading at around 22 cents – well below the all-time high of around $7.50 reached in early 2018.
Ahead of BWX’s resumption of trading, the company published its FY22 results which detailed a statutory loss of $335.6 million, primarily the result of a non-cash impairment of $322.6 million related to the reduction in the carrying value of intangible assets.
Full-year revenue was $198.3m, while earnings were negative at $6.4m – the company previously blamed rising inflation, interest rate hikes and a more cautious consumer for “challenging” retail conditions.
When announcing these figures in December, BWX Group CEO and MD Rory Gration apologized to shareholders for the significant delay.
“I apologize to all shareholders for the delay in releasing our financial year 2022 accounts and thank them for their patience as the board and leadership team, with the assistance of our strategic advisors, continue to implement a comprehensive financial and operational overhaul to implement,” said the CEO.
“FY22 was a disappointing year for financial performance. As a business we are facing the challenges, stopping historical unsustainable sales practices, recalibrating our cost base and committing BWX to return to a stronger, more focused and disciplined organization with a consistent revenue and earnings profile.
Notable, however, was the independent auditor’s report included in the group’s annual report, which highlighted the existence of “material uncertainty” that casts doubt on BWX’s ability to continue as a going concern.
According to the auditors, there was uncertainty about the group’s future for several reasons. First, the company’s loss and its operating assets exceeded liabilities by $32.3 million, noting that it had an unconditional waiver of its bankers’ CBA. If no waiver had been in place, liabilities would have exceeded current assets by $12.9 million.
Furthermore, the auditors pointed out that BWX expects to suffer a loss in 1H23. This, combined with “significant short-term deterioration in its working capital position”, has put the company in a difficult situation.
Also highlighted is the fact that BWX needs the continuous support of its bankers, including the continuous availability of its current facilities for the foreseeable future.
Finally, in order to continue the group as a going concern, the company needed to obtain additional debt financing in addition to its current facilities. This was somewhat assured in December last year when the CBA agreed to provide further working capital funding of between $12-13 million for a three month term.
“While management has prepared forecasts which show that the group can continue to operate as a going concern for the foreseeable future, there is material uncertainty regarding trading conditions and performance, and management’s ability to implement certain operational improvements in the business and other initiatives to be implemented as disclosed in the director’s report for the related benefits that can be realized within the predicted time frame,” the report said.
BWX said it was up to the challenge, noting that the extra money from the bank would help and that operational improvements within current trading conditions would impact forecasts.
Coinciding with the release of its results, BWX also announced some board changes, including the departure of chairman Ian Campbell, who has been replaced by Steven Fisher. The new chair has significant experience operating listed retail and consumer goods companies, including as chairman of The Reject Shop (ASX: TRS) since 2019 and Laybuy Group Holdings (ASX: LBY).
At the same time, Fiona Bennett and Rod Walker both stepped down as non-executive directors – moves which BWX said were in line with board renewal objectives it had previously announced.
BWX still counts Australian billionaire Andrew ‘Twiggy’ Forrest as its largest shareholder, who owns about 20 percent of the company via his investment vehicle Tattarang Ventures. In total, Tattarang spent more than $35 million in 2022 on his stake in the company, which today is worth just over that amount in its entirety.
Prior to these announcements, BWX had a rough run in the latter half of 2022, including Flora & Fauna being hit by a data breach that may have resulted in customers’ credit card numbers and expiration dates being transferred to a third party. BWX said this was the result of malicious code illegally inserted into the Flora & Fauna website.
Around 2,500 customers have been notified of the possibility that their details may have been transferred to the third party. No personal information such as customer names, CVV codes, passwords or other information entered at the checkout was obtained.
BWX has the opportunity to acquire the remainder of Foster-Blake’s Go-To Skincare via a put/call option in September 2024.
On the company’s most recent webcast, management was asked about how it could finance this future purchase. CEO Gration said the firm’s turnaround plan would result in enough working capital and increased EBITDA to buy out the rest of the subsidiary.
“These two initiatives on their own are about $40-45 million additional level of cash flow generated from the business,” he said.
“If all we did was generate that over the next two years, that would get us there to have the cash to pay that money off.
“Obviously we have other initiatives on the horizon in terms of bettering that EBITDA number and improving things, but that kind of trajectory is a positive one and gets us there, barring other initiatives.”
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