Jessica Simpson, Heelys Brand Owner Casts ‘Going Concern’ Doubts

(Bloomberg) -- Sequential Brands Group Inc., the parent company of brands including the Jessica Simpson fashion collection and Heelys sneakers, cast doubt on its ability to continue as a going concern and said it may struggle to pay its debt obligations as the Covid-19 pandemic squeezes retail.

The company said in an earnings release Friday that it isn’t likely to be able to comply with certain financial covenants in its credit agreement in the next 12 months. It’s planning to work with its lenders on an amendment to the terms but said it can’t guarantee that creditors would agree to the changes.

Sequential said it has enough cash to cover its operating expenses for at least a year, but can’t determine the full impact of the pandemic as retail sales in the U.S. plunge to record lows. Many retailers that carry Sequential’s brands were closed in March, April and May, denting revenues for the licensing company.

“While the coronavirus pandemic has significantly impacted the U.S. economy and the apparel and accessories industry, we plan to weather the storm by remaining laser focused on managing cash inflows, instituting further expense reductions, and negotiating short-term lender relief,” Chief Executive Officer David Conn said in prepared remarks.

New York-based Sequential owns and licenses a number of consumer fashion and activewear brands including Jessica Simpson’s clothing and shoe line, Joe’s Jeans, Heelys shoes and the Gaiam yoga business. It ended the first-quarter with $13.3 million of cash on hand and roughly $439 million of long-term debt on its balance sheet.

Sequential has been working to increase its liquidity to help it get through the pandemic. In addition to working with lenders, it’s drawn $14.1 million on a revolving credit line, implemented temporary salary cuts and decreased marketing spending.

Retailers across the country are struggling with plunging revenues as the coronavirus keeps physical stores shut and consumers at home. J. Crew Group and Neiman Marcus Group filed for bankruptcy last week citing ongoing losses and decreased sales.

The company’s roughly $400 million term loan due 2022 last traded around 96 cents on the dollar, according to people familiar with the pricing. Total revenue for the first quarter was $20.2 million, down from $25.5 million in the same period a year ago.

Sequential’s stock has dropped nearly 43% this year through Friday morning in New York, giving the company a market capitalization of $13 million.

©2020 Bloomberg L.P.