The Jessica Simpson Effect

Steve Kanaval |

Jessica_Simpson_7.jpg

Publicly traded Sequential Brands Group Inc. ($SQBG) announced in April that they would acquire Jessica Simpson’s brand, which is expected to bring in $1 billion in revenue (by the way, that’s not a guess – they’ve brought in at least that much already). It’s interesting that a small cap company’s main strategy is to acquire Jessica Simpson’s licensed brand to bolster the stock price, particularly because it worked, as shares are now 60% higher. 

I follow the small cap apparel sector, and I was really shocked at the amount of money this line generated – though to be fair, I don’t buy makeup, maternity apparel or fashion accessories. That said, it was still eye-opening to see that Jessica carries such substantial cache in retail, and it doesn’t look to be slowing anytime soon.

Founded in 2005, the Jessica Simpson Collection is a signature lifestyle concept inspired by and designed in collaboration with Jessica Simpson. The growing brand offers 31 product categories, including footwear, apparel, fragrance, fashion accessories, maternity apparel, girls clothing and a home line. The brand is supported by nearly 20 best-in-class licensees and has strong department store distribution through Dillard's Inc. ($DDS), Macy's Inc. ($M), Belk Inc. ($BLKIB), Lord & Taylor and Nordstrom Inc. ($JWN), among other independent retailers. Annual retail sales for the brand are approximately $1 billion.

The numbers for Jessica Simpson in 2015 project royalty revenues of $90.0 million, and have in excess of $250 million of guaranteed minimum royalties under its existing license agreements. This is also a great margin business for Sequential, which owns, promotes, markets, and licenses a portfolio of consumer brands in the fashion and lifestyle categories.

Sequential seeks to ensure that its brands continue to thrive and grow by employing strong brand management, design and marketing teams. Sequential has licensed its brands in a variety of consumer categories to retailers, wholesalers and distributors in the United States and around the world, and since news of the acquisition were rumored back in February 2015, shares are up 60% from $8 to near $14, so the plan for the company to get front and center with Jessica Simpson is working.

They’ve Made the Acquisition…Now They Need to Deliver

Some of the revenue for the next reporting quarter will come out in the wash, and prior to buying the Simpson Brand the company said it should add EBITDA. If they do, they better deliver to the big picture, because they have their hands in many pies as part of the business model. Hence, the recent acquisition and category expansion for its active lifestyle brand AVIA(R) and their full line of wearable fitness accessories at major retailers nationwide known for its athletic footwear and active wear apparel.

AVIA’s line of wearable products unite performance and function to support athletes at every level. Partnering with Lifeworks, the brand's first collection of wearables includes Bluetooth enabled activity trackers, digital pedometers and heart rate monitors, so they seem to be aggressive across the brand landscape.

Credit is due to management, because in January 2012, SQBG was trading 90 cents, and today they retest the $14 level. This is a terrific move in three years, and the aggressive moves across brands to deliver cash flow to the bottom line is a good way to grow share price. I really like the fact that they are able to fold Jessica Simpson into the mix and act as a major piece of the bottom line. It has evolved into an important brand and looks to be an important part of the growth of the company itself.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
JWN Nordstrom Inc. 60.09 2.83 4.94 3,345,504
M Macys Inc. 43.18 0.78 1.84 4,518,749
DDS Dillard\'s Inc. 72.99 1.39 1.94 554,481
SQBG Sequential Brands Group Inc. 5.14 -0.11 -2.10 215,764

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