XCel Brands, Inc. :XELB-US: Earnings Analysis: 2016 By the Numbers : March 27, 2017

XCel Brands, Inc. reports financial results for the year ended December 31, 2016.

Highlights

  • Gross margins narrowed from 33.17% to 31.11% compared to the same period last year, operating (EBITDA) margins now 11.26% from 16.44%.
  • Change in operating cash flow of 140.24% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 32.75 27.72 20.71 13.37 13.14
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 2.7 2.85 0.04 1.53 4.28
Earnings Growth (YOY) -5.02 6368.18 -97.13 -64.24 29.66
Net Margin 8.25 10.27 0.21 11.46 32.6
EPS 0.14 0.17 -0.08 0.16 0.57
Return on Equity 2.62 3.55 0.09 5.08 20.6
Return on Assets 1.78 2.05 0.04 2.13 6.35

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Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 33.17% to 31.11%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 16.44% to 11.26% in this time frame. For comparison, gross margins were 33.17% and EBITDA margins were 16.44% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

XELB-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 130.97 days, compared to last year’s level of 54.00 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

XELB-US‘s year-on-year change in operating cash flow of 140.24% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

XCel Brands, Inc. engages in the business of licensing and brand management. It specializes in the design, production, licensing, marketing and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Is brand portfolio include Isaac Mizrahi brands, the Judith Ripka brands, the H Halston brands, the C Wonder brand, the Highline Collective brand, and certain rights to the Liz Claiborne New York. The company was founded by Robert W. D’Loren n August 31, 1989 and is headquartered in New York, NY.

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