The headline figures from the Innovaderma trading statement were on the face of it quiet disappointing, however delving deeper there is not much to be disappointed about.
A profit of £0.65million is quite a significant drop from the £1million that was expected, but the reason seems to be that the company is investing for future growth. Which in my opinion could be quite stellar.
Skinny Tan looks like it is still doing well and recent product and brand extensions should see it still achieve a growth although in a slightly limited and seasonal market. It is trying to reduce the seasonal affects by launching body and facecare ranges, which if successful should provide year round income.
However, Roots looks like it could be the real growth driver in the future and the poor results look like they are in part due to the success of Roots. High demand and a new deal with Boots has seen supply issues, leaving the company unable to fulfil demand. Within the next few months Roots is doubling its shelf space within Superdrug and also launching in 359 Boots stores. I expect this is just the start of the relationship with Boots as when working capital allows I expect Roots to be launched in more stores and also Skinny Tan in January next year, once the Superdrug exclusivity ends. This should be really good news for Innovaderma as it reduces its reliance on one retailer. Which previously led to a profit warning after Superdrug ordered less than expected.
In fact a large part of the news release was about building relationships, hopefully some of these will be very fruitful indeed.
- Aspire brands has agreed a distribution agreement with Skinny Tan to get its products into stores in Scandinavia and the Benelux. If successful there is the potential in future to distribute other brands via Aspire Brands as well as using Aspire brand’s USA connections to do deals there.
- Douglas Beauty has launched Skinny Tan online, if successful there is a chance that it can launch in some of the companies 1,900 stores or potentially other Innovaderma brands could be brought on board.
- Sephora France has listed Skinny Tan online and this is also leading Innovaderma to create a company Direct to consumer (DTC) platform in that country, to hopefully…
A comment I made 7 months ago on Innovaderma (LON:IDP):
https://www.stockopedia.com/content/innovaderma-glowing-potential-or-diversifying-too-quickly-242768/?comment=3#3
So today's trading statement has got lots of hope and hype and some genuine good things going on...but its a helluva a profit warning and downgrade to expectations (assuming stocko FY18 and 19 figures representative).
I think the plan for new CEO is very interesting development...and very necessary. Haris Chaudhry the current CEO and founder is probably a great guy and has obvs driven this company. But he looks like he hit the buffers in terms of his management rather than sales, hype (a good thing for a start up!) and innovation ability a while ago.
The company has too many things going on, too big an investment requirement (which includes promotionally and op ex for company like this) and looks a distance away from being cash flow positive to support its own growth.
Assuming they succeed in getting a new CEO then this person is likely to clear the decks and pull apart many pieces of Chaudhry's creation to date. We'll see products go (likely sold for not much to zero to get the cost off IDP's books), capital raises, very generous incentives for new CEO and a cold bucket of water on expectations. The new CEO has a lot of leg work to do to put in a framework that supports just one scaleable consumer brand, never mind half a dozen.
I'm a million miles from expert on IDP so my comments are a bit generic based on a bit of past reading of accounts and putting together with today's news. My guess is the price will come down considerably from here, such that mkt cap is below revenues as I said in linked comment although that is a bit of an arbitrary and I the odds are it goes lower than that.
Where am I wrong? How is the cash flow position to support ongoing operations (that first before growth!) in shape to do anything? Big capital call...do you want to be in before it comes?
