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Now Is Not the Time to Bet on a Naked Brands Turnaround

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Naked Brand Group (NASDAQ:NAKD) has been in trouble for years. However, the situation turned truly grim in 2020. The company was forced to sell its namesake “Naked” brand, closed down its U.S. stores, losses escalated, shares hit penny stock levels, and NAKD stock was threatened with de-listing.

a man and woman wear plain white underclothes from Naked Brand (NAKD)
a man and woman wear plain white underclothes from Naked Brand (NAKD)

Source: Shutterstock

The pandemic didn’t help the situation, given the company sells swimwear and intimate wear. Bankruptcy has been a constant threat. But as January wound down, NAKD suddenly caught fire. Shares popped 254% in a single day. This stock is currently up more than 450% from the start of the year.

Don’t go looking for any dramatic turnaround in Naked Brand’s fortunes for the sudden interest in NAKD stock. The arrival of Covid-19 vaccines hasn’t resulted in people suddenly rushing to buy swimsuits and fancy underwear.

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The company’s plans to transform itself into a leading e-commerce platform for intimate apparel (more on that shortly) doesn’t have investors lined up. Instead, this is another example of the Reddit effect. Retail traders targeted NAKD stock through Reddit and have pushed its price up.

NAKD Stock Flailed in 2020

Naked Brand Group was in serious trouble going into 2020. The New Zealand-based company had been losing money and seeing revenue drop at an alarming pace. In fiscal 2019, its revenue was $72.7 million. When it reported fiscal 2020 results last May, that had dropped to $58.5 million.

Although NAKD stock started 2020 trading in the $1.70 range (which was still a dramatic decrease from just two years before), it quickly slipped. By May, the company was threatened with being de-listed from the Nasdaq.

Still undergoing a strategic turnaround, Naked Brand Group was reduced to selling its namesake “Naked” brand early in the year. While NKD avoided de-listing, the challenges continued to pile up. The company’s remaining brands, including Bendon and Frederick’s of Hollywood faced the issue of the coronavirus all but shutting down travel, plus a recession. Not good news for brands focused on swimwear and intimates.

In January, Naked Brand Group’s CEO commented on the company’s restructuring plans:

“While Naked brand products enjoyed modest sales in the United States, the lack of foreign demand has led us to monetize the trademarks and retain the designs as part of our new focus to build Bendon as our master brand globally, leveraging its storied 72-year history. This represents yet another step in our roadmap to profitability …”

By mid-June 2020, NAKD was once again in penny stock territory, dropping as low as 7 cents in November.

The Plan to Become An E-Commerce Intimates Leader

Naked Brand Group unveiled a new “transformative” restructuring plan four weeks ago. Remember Bendon, the brand that was to be the centerpiece of the previous restructuring? It’s gone under the new plan, being sold off.

Instead the focus will be on e-commerce, selling intimate apparel online:

“We have experienced success with our e-commerce business and are prepared to rapidly expand our existing digital footprint as we pursue the development of a single, world-class technology platform serving the intimate apparel industry and seek to become the conduit for consolidation.”

As part of the press release announcing the latest restructuring, Naked Brand cited the $6.5 trillion in global e-commerce sales expected by 2023. Impressive, but what tiny fraction of that amount will go to intimate wear, lingerie and swimwear? And of that sliver, what percentage will Naked Brand Group capture?

It was about this time that the Reddit effect went into play. After an initial bump in mid-January, NAKD stock actually slid on the announcement of its restructuring plan, after which it posted that 254% single-session gain. It peaked several days later with a $1.65 close on Jan. 29 and has been slipping ever since.

Bottom Line on NAKD Stock

Should you be considering jumping on board the Naked Brands train in hopes it still has steam? After all, it’s not impossible that the company’s e-commerce plans will pay off with a turnaround. One that works this time. And the unexpected surge in NAKD stock allowed the company to capitalize by selling more shares and raising some cash to keep going in the meantime.

I tend to side with InvestorPlace’s Ian Bezek who wrote that “NAKD stock remains a highly speculative gamble at best” several weeks before the Reddit effect sent shares climbing. After the past few weeks, that sentiment is even more appropriate.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.

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