BWX share price on watch amid $335m loss and guidance downgrade

This personal care products company is having a nightmare period…

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Key points

  • BWX has posted a huge loss for FY 2022 and downgraded its guidance
  • The company had been using "channel stuffing" practices to boost its sales
  • The company's chairman is stepping down but will remain on the board despite overseeing the debacle

The BWX Ltd (ASX: BWX) share price will be returning to trade tomorrow after a four-month hiatus.

This follows the release of the embattled personal care products company's long-awaited results for FY 2022.

In case you're not aware, BWX shares were suspended in August after the company requested additional time to prepare its results due to certain revenue recognition issues and the likely impairment of its intangible assets to a level significantly below their carrying value.

BWX shares on watch following long-awaited update

The BWX share price will be on watch following the release of its results for the 12 months ended 30 June. Here's a summary of how it performed against restated figures from a year earlier:

  • Underlying revenue up 11.5% to $204.5 million
  • Underlying EBITDA down from $24.9 million to negative $0.2 million
  • Statutory loss of $335.6 million, down from a profit of $17.5 million

All metrics are short of the guidance it provided at the end of June to support its capital raising.

What were the drivers of this result?

Management advised that the decline in EBITDA was predominantly driven by the end of investment buys in June, as well as a 34% increase operating expenses to $112.2 million.

Investment buys is an incredibly vague term that BWX uses in place of "channel stuffing." This is a deceptive practice that involves selling large volumes of products to distributors just before the end of the financial year to inflate sales and earnings figures for the period.

On the bottom line, the company behind the Sukin skincare range reported a statutory loss of $335.6 million, which is almost three times as large as its market capitalisation. This was driven largely by a $322.6 million non-cash impairment related to a reduction in the carrying value of intangible assets.

For the 12 months, the company recorded an operating cash outflow of $22.2 million. This left BWX with net debt of $64.3 million.

The company is also sitting on $65.3 million of inventory following a $19.1 million increase in FY 2022. This reflects the end of channel stuffing activities and the flow-on effect of retail partners unwinding their own inventory levels.

Management commentary

BWX's CEO and managing director, Rory Gration, apologised for the disastrous turn of events. He said:

I apologise to all shareholders for the delay in releasing our Financial Year 2022 accounts and thank them for their patience as the Board and leadership team, with the assistance of our strategic advisors, continue to implement a comprehensive financial and operational re-set. FY22 was a disappointing year for financial performance.

As a business we are facing into the challenges, by stopping historical unsustainable sale practices, recalibrating our cost base, and committing BWX to return to a stronger, more focused and disciplined organisation with a consistent revenue and earnings profile.

Business update

BWX has announced a number of changes in the board room. This includes Ian Campbell stepping down as chairman with immediate effect. However, despite overseeing this disastrous period for the company, he will stay on as an independent non-executive director.

Replacing Campbell as chair will be Steven Fisher, who currently serves as the chair of Reject Shop Ltd (ASX: TRS) and Laybuy Holdings Ltd (ASX: LBY).

Guidance downgrade

Finally, although BWX is experiencing good "in-market demand" in Australia and the United States and expects a stronger second half, it has downgraded its full year guidance.

Management now expects revenue in the range of $205 million to $230 million and EBITDA in a range of $25 million to $30 million excluding one-offs.

This compares to the $260 million to $270 million and $45 million to $49 million guidance that it provided in June to support its capital raising. Ouch to anyone taking part in that raise!

BWX also revealed that it expects net debt to peak at $95 million as it completes its debt restructuring program.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BWX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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