Beauty and the beast: Why Zoe Foster Blake is the least of BWX problems

BWX’s Gration acknowledged that the major change, which caused the group to slash its profit forecast, was that it could no longer engage in a practice where retailers increased sales by ‘selling’ more products to their distributors than they could sell to consumers. .

The retail winds have changed so rapidly that this practice of channel filling – which the company had relied on in its forecasts given in May – is no longer tenable just 6 weeks later.

“Retail conditions have been challenging and changing, putting more pressure on our retail partners and ourselves with rising inflation, rising prices and rising interest rates,” Gration explained to analysts and investors on a conference call following the announcement of the capital increase in late June.

“When we provide trade updates in May, our plan assumes sales and holds certain inventory levels with select wholesale retailers in June. Challenging market conditions have caused us to change our approach.”

BWX’s retail partners are already stacked with their wares thanks to a pandemic that is pushing retailers and manufacturers from a low-inventory just-in-time model to a high-inventory just-in-case model. There is also additional inventory in the sales channel as BWX prepares to upgrade its new distribution center.

The traditional end-of-year push to get things into distribution channels to make financial numbers look good is simply not going to work.

“We’re talking four weeks of revenue from the business,” is how Gration describes the inventory and sales hits that he says will ensure it’s “no longer a starvation model for partying”.

This led BWX to cut its forecast for the year ending June 30. The disruption to its plans will also trigger a decline in asset values ​​when the company releases full-year results next month. This will include the purchase of its 50.1 percent stake in Go-To last September. Underperforming assets will be put up for sale, but this is not expected to include Go-To, or the well-performing flagship brand Sukin.

Analysts support the need to stop channel stuffing.

“BWX ended its historical practice of selling Sukin shares for several months in June every year to pharmacy/wholesale customers. While the decision has cost BWX $25 million in revenue and $17 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for the 2022 financial year, moving forward we believe it makes sense,” UBS retail analyst Apoorv Sehgal said in a note. for clients.

But while BWX said sales and revenue would bounce back after stuck to selling retailers – such as Gudang Kimia – just as much of the Sukin product as needed, analysts weren’t so sure.

“We are now cautious on execution given the recent challenges,” said Macquarie, who sees the potential downside risk on the company’s guidance given the execution issues to date.

And this brings us to Zoe Foster Blake and her right to sell the rest of the Go-To to the financially impacted BWX.

The big issue isn’t the $89 million BWX paid for a 50.1 percent stake in Go-To. The group sold the shares for $4.85 each to pay for the cash outlay.

But as part of the deal, Foster Blake was given the option to sell the remainder of his business to BWX, as early as September 2024, when his bid to stay with the company ends. This second transaction is currently recorded in BWX’s account as a liability of $93 million.

Gration said the deal was subject to Go-To’s market assessment at the time of sale, which is reviewed every six months in BWX accounts.

This is a double-edged sword for BWX. The cut in ratings for Go-To confirms that it’s paying too much for the business. But a strong performance by the beauty brand could increase the massive cash outlay it faces buying Foster Blake. The company already paid $10 million of the cash it recently raised to its lenders, which would allow the embattled group to breach debt agreements this year.

“That’s an important reason to lower net debt as soon as possible,” Gration said of potential payments to Go-To investors.

Ironically, Foster Blake said he was looking for a business partner, not cash, when pursuing a deal last year.

“We’re not in a position where we need investment or anything like that – I just want a partner,” he said Mamamia in an interview.

“I just want some good heads around the table. And I really wanted someone who could help us grow overseas, because the world is full of brands that have tried and failed. And it’s really expensive, hard training to get into the international market.”

Foster Blake currently entertains his 785,000 Instagram followers with photos of his Lake Como vacation with his family including her husband, Gold Logie winner Hamish Blake, and has yet to comment on the massive change in the group that controls his startup. Go To’s representatives declined to make him available for interviews for this story.

Foster Blake has the cash and the option to sell the remaining stake to BWX, and will retain ownership of his social media following and intellectual property associated with his personal brand, if he decides to leave.

The BWX CEO and chairman who hatched a deal with him last year — Dave Fenlon and Ian Campbell — won’t be there when he makes his decision in 2024.

But he doesn’t have to wait for the board to be renewed to see who will be in charge.

While Tattarang will only get one board seat, a more important fact may be that Forrest vehicles and Bennelong Fund Management collectively own more than 40 percent of BWX, and will have a decisive vote on future board compositions.

Bennelong Australian Equity Partners investment boss Mark East, which manages BWX shares, declined to comment on the investment. Forrest’s Tattarang would not comment beyond a statement hinting at his intention to remain a long-term investor after lifting his stake to just below the 20 percent threshold that would require a takeover offer.

One thing we know for sure, they won’t take Foster Blake lightly.

The Business Briefing Bulletin delivers key stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

#Beauty #beast #Zoe #Foster #Blake #BWX #problems