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Earnings call: PLBY Group outlines Q2 2024 results and strategies

EditorAhmed Abdulazez Abdulkadir
Published 09/08/2024, 14:44
© Reuters.
PLBY
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PLBY Group, Inc. (PLBY), the parent company of the iconic Playboy brand, discussed its second-quarter 2024 financial results and future strategies during its earnings conference call.

The company is set to announce a series of sponsorship deals in the fall and is reviving its physical magazine in early 2025 to complement digital efforts. A new e-commerce licensing agreement is expected to bolster the licensing business, with a particular focus on improved operations and contract enforcement in China.

Despite a decline in the Honey Birdette business in Q2 2024, the company is experiencing margin expansion and double-digit growth in Q3, attributed to a reduction in discount days and robust performance in e-commerce and physical stores. PLBY Group is also in an exclusivity period with lenders to repurchase debt at a discount, aiming to reduce leverage and increase operational flexibility.

Key Takeaways

  • PLBY Group is set to announce new sponsorship deals and will reinstate its physical magazine as a promotional tool.
  • A new licensing agreement is expected to enhance the e-commerce sector, with a focus on rebuilding the licensing business.
  • The Honey Birdette business, despite a Q2 decline, is seeing margin expansion and double-digit growth in Q3.
  • The company has hired a head of stores in the US and is expanding its online presence.
  • PLBY Group is in an exclusivity period to repurchase debt at a discount, which will reduce leverage and improve operational flexibility.
  • Various fundraising options are being considered to pay off the debt, including asset sales and a new debt facility.

Company Outlook

  • PLBY Group plans to use the physical magazine launch in early 2025 to boost digital initiatives.
  • The company is confident in its ability to raise funds in the senior market to address its $215 million gross debt.

Bearish Highlights

  • The Honey Birdette business experienced a decline in Q2 2024 compared to a heavily discounted Q2 2023.

Bullish Highlights

  • New partnerships in the China licensing business are expected to bring better contract enforcement and operational control.
  • The company anticipates significant reduction in gross debt outstanding.

Misses

  • No specific financial performance figures, such as revenue or profit, were disclosed in the summary provided.

Q&A Highlights

  • CEO Ben Kohn discussed the capital allocation strategy, including plans to pay off gross debt at a substantial discount.
  • Kohn expressed gratitude and hinted at future discussions regarding the company's digital strategy.

InvestingPro Insights

As PLBY Group, Inc. (PLBY) navigates through its strategic initiatives, including sponsorship deals, magazine revival, and e-commerce licensing agreements, it's important to consider the company's financial health and market performance. Here are some insights based on real-time data and InvestingPro Tips:

InvestingPro Data highlights that PLBY Group currently has a market cap of approximately $55.26 million. The company's revenue for the last twelve months as of Q1 2024 was $136.07 million, although it experienced a decline of 21.66% compared to the previous year. Despite the revenue decline, PLBY's gross profit margin remains impressive at 66.56%, indicating a strong ability to control the cost of goods sold and maintain profitability at the gross level.

Two key InvestingPro Tips for PLBY Group are the significant debt burden the company operates with and the analysts' anticipation of a sales decline in the current year. These factors are particularly relevant as the company discusses repurchasing debt at a discount and capital allocation strategies.

Furthermore, the company's stock price has been quite volatile, with a 52-week price range that indicates a significant drop from its high. This volatility and the stock's performance over the last year, which has seen a decrease of 52.3%, may raise concerns for investors.

For those looking to dive deeper into PLBY Group's financials and market performance, there are additional InvestingPro Tips available on the platform, which can provide further guidance on the company's outlook and investment potential.

Full transcript - Plby Group Inc (PLBY) Q2 2024:

Operator: Good afternoon, everybody, and welcome to PLBY Group's Second Quarter 2024 Earnings Conference Call. Hosting today's call are Ben Kohn, Chief Executive Officer, and Marc Crossman, Chief Financial Officer and Chief Operating Officer. The company will be hosting a question-and-answer session today. [Operator Instructions]. While we wait for the queue to fill, I would like to hand the call over to Matt Chesler from the Investor Relations Team. Please go ahead.

Matt Chesler: Thank you, operator, and good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8K filed today by PLBY Group, which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast, and a replay will be posted to the company's Investor Relations website. Please note that statements made during this call, including financial projections or other statements that are not historical in nature, may constitute forward-looking statements, such statements are made on the basis of PLBY Group's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could cause the company's actual results to differ materially from historical results and forecasts, including those risks set forth in the company's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. During this call, the company may refer to non-GAAP financial measures. Such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnest release. PLBY Group filed with its form 8K today. And with that, I'd like to hand the call back over to the operator to begin the Q&A session. Operator?

Operator: Thank you. [Operator Instructions]. Our first question is from Jason Tilchen with Cannacord Genuity. Please proceed.

Jason Tilchen: Great. Good afternoon. Thanks for taking the questions. First one for me is one of the interesting things that stood out in the comments in the press release was regarding the pipeline of sponsorship deals that you're seeing. I'm wondering if you could share a little bit more about how that's coming out, sort of what we can expect in terms of a timeline for when that could be a potential revenue contributor to the overall business? Thanks.

Ben Kohn: Sure. Jason, good afternoon. Thanks for the question. You know, I think as we talked about on the last call and also announced today, we have brought in a new digital team that we are continuing to build out. And as we've evolved our greater model with the creators really at the center of it, we think there's a lot of other opportunities around membership and around lifestyle events, etc. And part of that is driving what I would say is advertising or sponsorship sales as we activate that community that Playboy has. And so I would say it's a robust pipeline. We're very excited. We've already closed some deals and we'll be announcing those, as we move through the fall. We'll be participating in New York in September at an investor conference, as well as out there talking to investors, really unveiling our media strategy moving forward and what that means. So I would say, there is a robust pipeline from big name advertisers and sponsorships that are very interested in what we can deliver. And we'll be sharing more of that in September, really the evolution of our membership and creator strategy. You can see that, starting to come to life with the new website that we launched two days ago. You'll see that that website is a state for website featuring content. Some of it, with a wink and a nod to the past, 20 questions, etc., but also featuring the creators that we work with on our platform. And all of that is a way to promote those creators, to get them integrated and working with brands, something that differentiates us from other platforms out there.

Jason Tilchen: Great. Very, very helpful. Another thing that sort of stood out from the press release, obviously the return of the magazine. I'm just wondering a few sort of small questions off this one, a little bit, if you could share a little bit more about the strategy behind bringing the actual physical magazine back and then sort of what level of investment is needed and is this going to be more of a, you know, the goal for more of a financial contribution or is it more as a marketing tool to drive sort of more awareness around some of the other initiatives that you're doing on the digital side? Thanks.

Ben Kohn: Sure. Yeah, we're very excited. I think we've talked about this in the past, but really returning the company to its roots. You know, especially with the greater platform, as we look at that and we say, how do we feature creators? How do we offer something that other people don't have? The magazine is the ultimate tool, right? It's something that people ask us for all the time, both from a user perspective and from a creator perspective. And so we're happy to bring that back in the beginning of '25. We're an eight-city Playmate casting call. Very excited for that, for the marketing. But the magazine is mostly for promotional purposes and we'll see how that evolves. But you should expect, you know, just like the historical magazine, Playmate's in it and you should expect great content in it as well. You know, 20 questions, the Playboy Advisor and other franchises, as well as potentially a celebrity cover. And so we're excited to bring that back. It's been a long time coming and we think it's a great promotional tool for everything else we're doing on the digital and something that we look to present to investors as we move into the fall, what the comprehensive and cohesive digital strategy looks like.

Jason Tilchen: Awesome. Very, very helpful. And then one last one for me. Yesterday, you made an announcement regarding a new licensing agreement on the e-commerce side. It seems more like a domestic deal. I was curious, if you could share a little bit more about what was exciting about that partnership and then also maybe if there's an update on sort of how we can expect the trajectory of the recovery for the China licensing business to evolve? Thanks.

Ben Kohn: Sure. Yeah. So I think we've been really focused on building back our licensing business. We have a robust pipeline of deals. The e-commerce partner that we announced yesterday not only provides, $7.5 million of guarantees over the life of the deal, plus a percentage of the revenue above that. But it also is structured in a way to work with the creators on our platform. Really, when you sort of look at the growth of what I would say is online shopping, TikTok, etc., we obviously we see that in China with Douyin. And what's happening there, it's an integrated strategy working with great designers of apparel and integrating that with their creators. Again, looking at ways to differentiate ourselves from other platforms that are out there, but stay true to who the brand is. As far as China, our partner is making great progress in their product line and developing that, which is coming up here in about a month. And we are seeing other opportunities both in Asia and the rest of the world from a licensing perspective. And hope as much as we wanted to get some of these deals done in the second quarter, some of them have slipped to the third quarter, but hope to be making further announcements on new licensing opportunities. And especially when you sort of think about this as a brand, this is a brand that has never gone out and spent money in the traditional marketing way that brands spend. It's always done it through content. And so part of the content strategy and the team that we brought in, we also believe will lead to more licensing opportunities moving forward as the brand continues to reestablish its voice.

Jason Tilchen: Very helpful. Thanks a lot.

Operator: Our next question is from Salil Sanjiv with Jefferies. Please proceed.

Salil Sanjiv: Hi, this is Salil Sanjiv with Jefferies. I'm for James Heaney. Thanks for taking the question. My first is a bit of a follow-up on the China business. Could you go over just overall the contrast structures with the new partners versus previous partners? Any color on how you are picking those partners and basically getting the confidence that these deals will come through? Thanks.

Ben Kohn: Sure. So the first thing I think is just refreshing what we had to do because of changes in the market in China post-COVID or since COVID. It was partially driven by the platforms, which was we had a legacy licensing model over there where we were licensing and then our partners violating our contracts started sub-licensing or they were basically what we found out through our audits were selling what we call bags of tags. And that did not work with the Douyin, who were driving a big percentage of the e-commerce over in China today. And so we ended up, because of contract violations and non-payment, terminating our old partners. And what we went out to find was really what I would say is, operator owners or operator managers versus a middleman who was selling bags of tags. The partner -- the main partner we've picked is an operator. They not only do design, but they have their own physical studios, where they're bringing in influencers to sell products on Douyin, etc. The deals that we've done are shorter term in nature than what our historical deals were. So these are five-year deals. They have lower NGs, largely in the beginning because there had to be some market cleanup that was done as we moved away from our old partners. And so we worked with our new partner, but we have a higher percentage of the revenue in those deals. And the way I would think about it is it's a starting point right now for us to rebuild the business the right way. And the goal would be that if the partners are successful, which we think they will, that there'll be an opportunity to revisit those NGs as sales continue to build. The other thing that we've done within those contracts is we've put much greater controls in those contracts than we had in our previous contracts. And I would say, the best way to know they perform is the partners that paid us today. And so that in any contract is always the best way to know they're performing. But I think through our joint venture with a subsidiary of Liam Baum [ph], we have the right people on the ground, the right controls in the contract to make sure that we are enforcing our contracts moving forward, something that we did not have previously.

Salil Sanjiv: Appreciate the color there. A follow-up, yes, a new question on Honey Birdette. It seems like last quarter there was a bit of momentum that was being built up, but it seems that this quarter is a bit weaker. Can you talk about some of the dynamics you're seeing in that business?

Ben Kohn: Yeah, I'll take the high level and then I'll turn it over to Marc because I don't think the numbers tell the full story. I think the first thing is we were down if you look at quarter-over-quarter. So if you go back to '23, Marc joined us in April, give or take, of '23. The second quarter in '23 was the last, what I would say, previous heavily discounted quarter. And so we're now past that. But if you look at Q2 '24, we were down 50% in the number of days that we were on sale versus Q4 '23. The good news is we saw a close margin expansion during that period of time. I'll let Marc comment on some of the new hires we've made on U.S. retail and what we're seeing. I would say that so far in Q3, we're up double digits over last year and we're seeing that not only from an e-commerce perspective, but from a store perspective too. Marc?

Marc Crossman: Yeah, excuse me. In terms of what we're seeing in the U.S., we just hired a head of stores in the U.S. and typically our stores have been comping down for a while and we're actually seeing stores in the U.S. comp up. So a lot of the things we're doing there are creating the momentum that we need that's dovetailing off of what's going on with our online business. So we brought that in. We're also expanding our online business because that's one area where we think we need to participate in social channels. There's a lot of stuff that the learnings we're seeing from CENTERFOLD can bring that into Honey Birdette. So we're beefing up that team. Yeah.

Ben Kohn: I think we feel good with where we are with Honey Birdette and I think Honey Birdette gives us another lever. Also, we announced today that we've reached an exclusivity period with our lenders to repurchase our debt at a significant discount. I think for us from a balance sheet and a leverage perspective, should we be successful in executing and paying off our significant discount, it significantly reduces the leverage outstanding on the company, which gives us, again, more operational flexibility in running the company.

Salil Sanjiv: Great. Thank you. And just my final is a bit of a follow-up on the capital allocation strategy. Can you talk about, I guess, the strategy going forward given the ability to now pay down the debt at a discount? Is it likely coming from further asset sales or how are you thinking about going towards paying down that debt? Thank you.

Ben Kohn: Sure. So right now, there's called $215 million of gross debt outstanding. We've reached an exclusivity with the lenders where we can pay that off at a substantial discount. And then to raise the money to pay that off, we have a lot of arrows in our quiver. So we've talked historically that we've had interest in hunting for debt. We've also engaged the leading investment bank to pursue a new debt facility, albeit at a much smaller amount than the existing debt, but that would satisfy our existing lenders. And we've actually even had interest since the rebuild of our China business and our Asia business. And so, yeah, we're pursuing all options. I think that we can get it done in the senior market. And if we're successful in doing that here, the gross debt outstanding on the company will be significantly reduced from where it is. But we have a lot of different options and we'll see which one gets done first.

Salil Sanjiv: Great. Thank you. I'll get back in the queue.

Operator: With no further questions at this time, I would like to turn the conference back over to management for closing remarks.

Ben Kohn: I appreciate everyone dialing in today. We look forward to sharing more about our digital strategy as we move into the fall and then talking to you guys after our Q3. So thank you very much for dialing in today.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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