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Consumer Cyclical

Manufacturing - Apparel & Accessories

Xcel Brands Inc

Investment Appraisal
The company recently completed a secondary offering, raising expected net proceeds of $2.2 million. Aside from shoring up its balance sheet, we believe that there were several reasons for the offering. One, the company may have additional deals in the pipeline, similar to its recent Christie Brinkley venture, discussed later in this report. Such deals with brands like Christie Brinkley require start up costs. In addition, we believe that it wanted to have its powder dry for other transformative opportunities. And, finally, the company was able to bring in some institutional interest to its shareholder base. We view the capital raise favorably, as the use of proceeds could enhance its revenue and cash flow growth.&nbsp;&nbsp;
The blueprint for future partnerships will be similar to the one announced in December 2023 with super model Christie Brinkley. At that time, the company announced a joint venture with Christie Brinkley to develop TWRHLL, a lifestyle and apparel brand, for distribution in retail and livestream commerce. Notably, Christie will serve as the public face and voice of the brand, and will be making media appearances to promote TWRHLLâ€™s initial product release, which is scheduled for spring 2024. We believe Christie Brinkley&#8217;s fashion industry experience and household name recognition could help shine a light on other company initiatives, such as ORME. There were some start up expenses to onboard the Brinkley brand, and, as such, the recent capital raise likely will be used to start up additional brands.&nbsp;
We believe that the additional brands will feed into the funnel of its marketplace platform, called ORME. On January 24, 2024, the company announced a 30% investment in ORME, a short-form video (SFV) marketplace for fashion products and home goods. The platform aims to provide a social commerce platform for shoppers, influencers and brands alike by improving the incentive structure. Notably, ORME utilizes a referral fee structure for shoppers and influencers that offers rewards for sales. The referral fee is paid by the brand that sold the product, thus improving visibility and effectiveness of advertising dollars. Additionally, ORME&#8217;s very popular SFV style, similar to that of TikTok, stands to benefit from a high viewer to shopper conversion rate. According to McKinsey &amp; Company, 28% of video shopping leads are converted to sales, on average. The addition of large brands or influencers with name recognition to the platform would be key catalysts for ORME&#8217;s success. More information on ORME is available <a href="https://www.channelchek.com/videos/xcel-brands-xelb-corporate-overview-fireside-chat-with-ceo-robert-dloren">here.</a>
Notably, the stock price in secondary offering was $0.65 per share for approximately 3.2 million shares of common stock. Proceeds totaled $2,134,874 before underwriting discounts, commissions and expenses. Additionally, Robert Dâ€™Loren, the companyâ€™s Chairman, CEO and President, participated in a private placement, purchasing 294,642 shares of common stock from Xcel at $0.98 per share for a total of $288,749. After the secondary offering, the companyâ€™s fully diluted shares outstanding increased to roughly 23.5 million. Importantly, we are updating our EPS forecasts to reflect the estimated fully diluted shares outstanding.
 Near current levels, the XELB shares trade at an enterprise value of 0.8 times our 2024 revenue forecast and 1.6 times our 2025 adj. EBITDA forecast, well below industry peers trading at an average of 8.8 times 2025 adj. EBITDA estimates as illustrated in Figure #1 Industry Peers. Due to the additional shares from the secondary offering, we are lowering our price target from $3.50 to $3.00 and maintaining our target multiple of roughly 8 times Enterprise Value to our 2025 adj. EBITDA forecast. Notably, our 2024 and 2025 revenue and adj. EBITDA forecasts have not changed. In our view, the XELB shares warrant a valuation based on the companyâ€™s cash flow potential, given its strategic emphasis on returning to positive cash flow generation. We believe the company will swing towards cash flow positive by the back half of 2024, making 2025 the first complete year of positive cash flow generation, post-restructuring. As such, we are basing our valuation on our 2025 adj. EBITDA forecast of $8.3 million. Our $3.00 price target implies a target multiple of roughly 8 times Enterprise Value to our 2025 adj. EBITDA forecast, which is more in line with peers. The shares are rated outperform. 
 

 
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 Figure #1 Industry Peers
 <img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/xcel-comps-3-26-24.PNG" style="width: 616px;height: 351px" /> 
 
 Source: Company filings &amp; Noble estimates

Xcel Brands Inc (XELB)

Opportunistically Fills Its Coffers

Fundamental Analysis:

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Sets Its Course Toward Profitability (XELB)

Opportunistically Fills Its Coffers (XELB)

Updates Investors With Preliminary Q4 Results (XELB)

Highlights From Noblecon19 (XELB)

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