The listed owner of skincare brands Sukin, Nourished Life, Flora & Fauna, Go-To Skincare and more has today slashed its expectations for full year revenue and earnings figures after second quarter sales revenue came in ‘significantly below’ internal targets.
Melbourne-based BWX (ASX: BWX), which only recently recommenced trading in 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. Further, earnings will be around 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 up in the latter half of last year and resulted in the company posting a $335.6 million statutory loss, including a $322.6 million impairment charge.
The company, blames a number of factors on the Q2 revenue figure, including $4.1 million of revenues that were invoiced in December, but were recorded in January 2023.
Ongoing cash constraints are also a problem, which challenged BWX’s ability to maintain inventory levels, resulting in out-of-stock issues in several lines and affecting sales in its Asia Pacific and digital business units - the latter of which includes brands Nourished Life and Flora & Fauna.
BWX says these problems have affected the company’s promotional activities, which in turn also adversely affected sales revenues.
Net operating cashflows were in the red at negative $9.15 million - a $12.72 million improvement on the previous quarter - due to trading losses and payments for capital equipment and trade suppliers. Cash receipts were also lower than anticipated due to low sales results.
The company says it anticipates elevated inventory levels to reduce to target levels by the third quarter of the current financial year, while out-of-stock issues and the re-establishment of promotional activity is likely to improve in a similar timeframe.
Ultimately, BWX expects to implement its turnaround plans in Q4 FY23 and Q1 FY24 - half a year later than originally planned.
The company is hoping recently obtained registration approval from China’s National Medical Products Administration (NMPA) will give it a bit of a bump revenue-wise.
BWX obtained this approval in early January, permitting it to sell 12 Sukin-branded skincare products through wholesale and retail channels in China, rather than relying on cross-border e-commerce channels.
“BWX is now preparing these products for expert to China and it is anticipated that sales of these twelve Sukin branded skincare products in China will commence in FY24,” BWX said.
“We anticipate this initiative will contribute over $15 million in revenue per annum by FY26.”
BWX’s bad skin
Today’s update is the latest in a string of issues for the skincare company that spent a large part of 2022 suspended from trading on the ASX.
BWX, which acquired online retailer Flora & Fauna from entrepreneur Julie Mathers for around $30 million in May 2021 and 50.1 per cent of Zoë Foster Blake’s skincare brand Go-To Skincare for $89 million in August of that same year, only announced its FY22 results in December - months after ASX requirements dictate.
The company was only reinstated to trading on 20 December 2022, upon which its shares fell by 52 per cent to 30 cents per share. At the time of writing, the company is currently trading at around 22 cents - well below the historic peak of around $7.50 achieved in early 2018.
Prior to BWX’s resumption of trade, the company posted its FY22 results which detailed a $335.6 million statutory loss, largely the result of a $322.6 million non-cash impairment related to reduction in the carrying value of intangible assets.
Revenue for the full year was $198.3 million, while earnings were negative at $6.4 million - the company had previously blamed increasing inflation, interest rate increases and a more cautious consumer for ‘challenging’ retail conditions.
On announcing these figures in December, BWX Group CEO and managing director Rory Gration apologised to shareholders for the considerable delay.
“I apologise 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 re-set,” the CEO said.
“FY22 was a disappointing year for financial performance. As a business we are facing into the challenges, by stopping historical unsustainable sale practices, recalibrating our cost base, and committing BWX to return to a stronger, more focused and disciplined organisation with a consistent revenue and earnings profile.”
Of note however was the independent auditor’s report included in the group’s annual report, which highlighted the existence of ‘material uncertainty’ casting doubt on BWX’s ability to continue as a going concern.
According to the auditors, there was uncertainty as to the group’s future for a number of reasons. First, the company’s loss and its current assets exceeded liabilities by $32.3 million, noting that it had an unconditional waiver from its bankers CBA. If no waiver was in place, liabilities would have exceeded current assets by $12.9 million.
Further, the auditors pointed out that BWX expected to incur a loss in 1H23. This, combined with ‘significant short-term deterioration in its working capital position’, put the company in a tricky situation.
Also highlighted was the fact that BWX required the ongoing support of its bankers, including the ongoing availability of its current facilities for the foreseeable future.
Finally, in order for the group to continue as a going concern the company needed to secure additional debt financing in addition to its current facilities. This was somewhat secured in December last year when the CBA agreed to provide further working capital funding of between $12-13 million for a three month term.
“Whilst management has prepared forecasts that show the group can continue to operate as a going concern for the foreseeable future, there is a material uncertainty in respect of trading conditions and performance, and management’s ability to implement certain operating improvements in the business and other initiatives as disclosed in the directors’ report for the related benefits to be realised within the forecast timeframe,” the report said.
BWX said it was up to the challenge, noting the extra money from the bank would help and that operating improvements within current trading conditions would have an impact on forecasts.
In concert with the release of its results, BWX also announced some board changes, including the departure of chair Ian Campbell, who was replaced by Steven Fisher. The new chair has considerable experience in the operation of listed retail and consumer goods companies, including as the chair 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 that BWX said were consistent with board renewal objectives it had previously announced.
BWX still counts Australian billionaire Andrew 'Twiggy' Forrest as its largest shareholder, who owns about 20 per cent of the company via his investment vehicle Tattarang Ventures. In total Tattarang spent more than $35 million in 2022 on its stake in the company that today is only worth just over that amount in its entirety.
Prior to these announcements, BWX had a rough trot in the latter half of 2022, including Flora & Fauna being hit with a data breach that may have resulted in customer credit card numbers and expiry dates being transmitted to a third-party. BWX said this was the result of malicious code being unlawfully inserted into the Flora & Fauna website.
Approximately 2,500 customers were notified about the possibility that their details may have been transmitted to the third party. No personal information such as customer names, CVV codes, passwords or other information entered at checkout were accessed.
BWX has the opportunity to acquire the remainder of Foster-Blake’s Go-To Skincare via a put/call option in September 2024.
At the company’s most recent webcast, management was asked about how it could fund this future purchase. CEO Gration said the firm’s turnaround plan would result in enough working capital and increased EBITDA to buy out the remainder of the subsidiary.
“Those two initiatives on their own is about a $40-45 million additional level of cash flow generated from the business,” he said.
“If all we did was to generate that over the next two years, that will get us there to have the cash to pay down that money.
“Clearly we’ve got other initiatives on the horizon in terms of outperforming that EBITDA number and improve upon things, but that sort of trajectory is a positive one and gets us there, absent other initiatives.”
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