Earlier this week, U.S. fashion and lifestyle company Naked Brand (NASDAQ:NAKD) announced that its merger with Bendon Limited, a New Zealand-based swimwear and intimate apparel maker, was complete. It answered some questions about what would happen with NAKD stock.
Shareholders had approved the deal back at the beginning of June, but the firm saw very little trading activity as investors were likely waiting for the details to be ironed out before celebrating the news.
Although NAKD stock made its way markedly higher on Wednesday June 20 when the news broke, the share price had shed nearly $5 by the end of the week.
A Good Deal?
The merger announcement was initially well-received because the two similarly aligned brands working together certainly makes sense.
Together, Bendon and Naked Brand offer a compelling array of lounge wear and the fact that they serve different markets means there’s a great deal of growth potential once they’re combined.
Not only that, but former Bendon CEO Justin Davis-Rice, who now heads up the newly minted Naked Brand Group Limited said the partnership will give the firm more financial flexibility with which to expand its distribution networks and potentially acquire more brands.
The completed merger will bring popular, celebrity backed lines like Heidi Klum’s swimwear and lingerie brand under the NAKD umbrella.
Plus, Davis-Rice and his team appear to have their sights set on expanding the firm’s portfolio of brands even further now that Bendon has access to U.S. capital markets and can raise the necessary funds.
Many are expecting to see the intimate apparel space start to consolidate over the next few years, and NAKD is hoping to capitalize on that by raising additional funds to make strategic acquisitions.
Bendon’s brands have been gaining popularity in the U.S. according to Davis-Rice, so the merge came as a natural next-step.
The new company won’t just be focusing on the U.S. though, Bendon already has a huge distribution network that stretches into 34 different countries and a global supply chain that includes 28 Chinese facilities.
Why the Fall?
So, with so many growth opportunities on the table why did NAKD stock take a nosedive during the back-half of the week?
The most logical explanation is profit-taking. NAKD investors were cashing in on the stock’s mid-week pop, and really, can you blame them?
Yes the merger looks like it will unlock new growth opportunities for the new Naked Brand Group, but it’s still a small retail company and retail is a scary place to operate.
We’ve seen department stores like Macy’s Inc. (NYSE:M) make a real comeback this year, but despite improving share prices, investors are still skittish.
After all, fashion is fickle and now that ecommerce has revolutionized the way people shop, the industry has become increasingly competitive.
Also, there are some worries that intimate brands like those that NAKD stock represents will struggle. Just look at L Brands Inc. (NYSE:LB), whose Victoria’s Secret brand has been struggling to clear out inventory.
Instead, people are gravitating toward body-positive brands like American Eagle Outfitters’ (NYSE:AEO) Aerie.
In short, its difficult to say whether Bendon’s lines will be well-received in the States because it’s difficult to predict exactly where fashion trends will go next.
Although its helpful to have celebrity faces like Heidi Klum’s, keep in mind that the size 2 former Victoria’s Secret model doesn’t exactly represent a ‘women of all sizes’ brand.
Davis-Rice’s claims that Bendon’s brands are gaining traction via online retailers simply aren’t convincing enough.
Instead, investors will be looking for the new company to strike big deals with new distribution partners as well as posting sales gains in the coming quarters.
The Bottom Line
If you were holding onto NAKD stock before the merger, this week was a great time to sell. I wouldn’t expect to see NAKD make its way above $10 per share anytime soon.
Only time will tell if the new company has what it takes to carve out a lasting place in the retail space, so investors should stay tuned.
Over the next year or so we’ll see if the firm’s earnings results will provide insight as to whether the portfolio of brands is performing as well as expected in U.S. markets.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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