This might be the third or fourth time I’ve been asked to check in on Naked Brands (NASDAQ:NAKD). Each time, I’ve wondered why the stock is drawing interest. And each time I’ve come to the conclusion: because it can. Is that a good reason to buy NAKD stock? No, but it’s all I had.
However in the interest of finding something new to say I’ll offer this. The company had a large share offering in January and they’ve come out of it with a squeaky clean balance sheet, at least on the debt side. The company says they have no debt to go along with $270 million in cash.
Which makes me wonder if another company may decide that Naked Brand’s remaining assets have some value. In the case of Naked, the asset would be Frederick’s of Hollywood; although that may be a little inaccurate. Naked Brands is only the exclusive online licensee for the FOH website.
All Dressed Up and No Place to Go
I have to admit, the no debt caught my attention. But Naked Brands wasn’t done revving up its hype machine. The company also announced, as expected, that it was seeking shareholder approval to become a pure-play e-commerce company.
At face value, that makes sense. No retailer is going to be able to survive in a post-pandemic world without a seamless, e-commerce presence. This isn’t about public health and safety anymore. It’s just too darn convenient. And millions of Americans came to realize that over months when they had no other option.
But Naked Brands has a fundamental problem that goes beyond demolishing its brick-and-mortar presence. The company’s brands were already losing their impact. It wasn’t about “where” consumers were shopping; it was simply that they weren’t putting Naked Brands in their consideration set.
How do I know this? In my last article about NAKD stock, I made it clear that the company was failing to capture significant market share in what is forecast to be a $90 billion market by 2026. And this was happening despite the fact that lingerie sales actually increased in the last year. This included the “barely there” category of lingerie where Frederick’s of Hollywood resides.
That’s the marketing problem that Naked Brands has to solve. And solving that may take a sizable chunk of the company’s $270 million in cash to fix. However, a larger company with more assets to work with could decide the FOH brand is worth the risk. Naked Brands may not have the financial wherewithal to make the bold stroke that Lou Carlozo says would be required. However a company with deeper pockets might decide it’s worth the risk. And if not, they’ll just jettison the FOH brand.
NAKD Stock Did Not Hit a Home Run
Naked Brands’ shift to become an exclusive e-commerce company is not a home run. It’s not even a double, although they may claim it is. Quite frankly, the company is playing a bad hand as best as they can. To try and resuscitate its brick-and-mortar business, even in a limited capacity, would be madness.
This was the best option. And with some $270 million in cash and no debt, I wish them well. In fact, with no debt on the company’s books, speculative investors should not have imminent bankruptcy concerns.
But that doesn’t mean Naked Brands merits your investment. Keep in mind the company issued a press release trumpeting a clean balance sheet and a push to become a pure-play e-commerce company – and the stock is going down. This suggests to me that even the bulls are abandoning NAKD stock.
In the end, you may decide that goosing up a cheap stock for a quick trade is as thrilling as their catalogs used to be. But without clear evidence that there is a strong e-commerce market, or a buyer, for the company, I’d stay far away from NAKD stock.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.