The company has gone from just over $5 million in revenues in FY2012 to over $40 million in revenues in FY2014. The company delivered just over $88 million in revenue in the just-completed fiscal year. Adjusted EBITDA for the full year was $53.4 million, an increase of 122% over $24 million in the prior year. On February 24th, Sequential Brands reported earnings of 23 cents a share, an impressive 6 cents a share over the consensus. Revenues for the quarter came in at just under $31.5 million, up nearly 70% year-over-year and roughly $1.5 million above expectations.
However, it was the guidance provided by the company that caused better than a 20% one-day spike in its stock. Sequential’s management projected the company would deliver some $145 million to $150 million in revenue in FY2016 and $83 million to $87 million in adjusted EBITDA. At the midpoint of that range, EBITDA would show an approximate 60% improvement over FY2015. This is substantially above previously guidance both on revenue and EBITDA and largely the result of the Martha Stewart acquisition.
Given the company’s asset-light model, private equity partners and amount of potential targets I believe further purchases will continue to be used to power growth when they can be made on favorable terms. Earnings are increasing at a 30% to 40% annual pace and should reach 75 cents a share by FY2017 which could be a conservative bogey given the revised guidance for FY2016.
A better way to value Sequential is by EBITDA. The stock is selling for under five times its new EBITDA guidance. Bigger brand manager competitor Iconix (ICON) sold at just under 11 times EBITDA through most of the first half of 2015 before company specific issues caused the stock to crater in the back half of the year. At the time, Iconix was growing much slower than Sequential and had a much higher debt load to boot. Sequential’s stock has faced a headwind from Iconix’s recent litany of bad news and has been punished unfairly. Recent results should start to dispel those worries in the months ahead.