Ann Summers CEO Jacqueline Gold was turned down for a New Year’s honour

January 2, 2016 by admin
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Jacqueline Gold made quite an entrance to the Conservative Party’s last Black And White Ball

Smiling for the cameras as she emerged from a silver Rolls-Royce, her diamond-encrusted necklace, handbag and watch twinkling under the flashbulbs, Jacqueline Gold made quite an entrance to the Conservative Party’s last Black And White Ball.

While many other wealthy guests scurried in through a side door, a few even shielding their faces in the process, she happily stopped and posed in a velvet dress for the paparazzi who had gathered on the pavement of London’s Park Lane, outside the exclusive Grosvenor House Hotel.

It was a very public show of support for a Tory party which had, just a month earlier, unveiled Ms Gold — who as chief executive of Ann Summers is best known for bringing the ‘Rampant Rabbit’ sex toy to Britain — as its latest glamorous celebrity supporter.

Having never previously expressed much interest in politics, she had suddenly appeared in the front row at January’s media launch of George Osborne’s pre-election attack on Labour spending plans, before proceeding to give a series of interviews pouring scorn on Ed Miliband.

‘He seems like a nice man, and I don’t want to be hurtful, but it’s important to be honest: he’s bumbling and dithering,’ went one.

‘Whenever there’s a camera on him he seems to make constant gaffes which border on embarrassing. He reminds me of a groom at a wedding who’s drunk too much and can’t perform when it matters.’

It was, perhaps, in return for these priceless endorsements that David Cameron personally invited Gold — who is worth a reputed £240 million — to sit at his right hand at February’s £1,500-a-ticket ball, at which a bronze bust of Margaret Thatcher sold for £210,000 and a shoe-shopping trip with Home Secretary Theresa May fetched a four-figure sum.

It was a very public show of support for a Tory party which had, just a month earlier, unveiled Ms Gold (pictured with David Gold) as its latest glamorous celebrity supporter

Joining her at the Prime Minister’s table were such tycoons as hedge fund manager Andrew Law and City tycoon Michael Spencer.

Quite a blue chip circle, one might observe, for a brassy female entrepreneur who grew rich bringing ‘Vibrating Nipple Clamps’, ‘Couples Vibrating Love Eggs’, and the ‘Divine Prostate Massager’ to the British High Street.

Not least since Ann Summers is still (according to its annual accounts) controlled by her father David, a pornographer whose stable of degrading magazines once included Teenage Hardcore, and whose titles advertised ‘barely legal young sweet p***y’.

Our Prime Minister was doubtless perfectly comfortable in Miss Gold’s company, however. For he appears to take a relaxed attitude towards her family’s line of business.

After all, it’s only two years since Cameron gave a Conservative peerage to Karren Brady, a longstanding protégée of David Gold’s business partner David Sullivan — making her his official ‘Small Business Tsar’ in the process.

Back then, it was widely noted that the convent-educated Brady, nowadays best known as a sidekick of Alan Sugar on The Apprentice, has a colourful past for a member of our Upper House.

‘What the hell just happened?’ Bewildered Sherlock fans…

What drove a magistrate’s daughter to plot a bomb massacre?…

She had, after all, begun her career in the Eighties as a director of Sullivan and Gold’s ‘boobs and bums’ premium sex lines, and of their smut-filled Sport newspapers.

Fast forward to last spring, and Jacqueline Gold’s journey to join Brady at the heart of the Tory establishment was continuing apace.

She campaigned vigorously for the Tories during both the election and the ensuing autumn conference season, when she hosted a fringe event addressed by Nicky Morgan, the Education Secretary and Minister for Women.

That journey was then completed this week, in spectacular fashion, when the New Year’s Honours were announced: Gold, 55, was appointed a Commander of the Most Excellent Order of the British Empire.

On paper, this signal honour was granted for all the right reasons.

It did not, the announcement stressed, represent some form of payback for her recent decision to support David Cameron.

Neither had it anything to do with a misguided notion that Britain should somehow celebrate the trade in sex toys, bondage gear and racy underwear that her 138 Ann Summers stores stock.

Instead, according to the official announcement, Jacqueline Gold was accorded the CBE — just one step down from a Damehood — for her ‘Service to Entrepreneurship, Women in Business and Social Enterprise.’

Jacqueline Gold campaigned vigorously for the Tories during both the election and the ensuing autumn conference season, when she hosted a fringe event addressed by Nicky Morgan, the Education Secretary and Minister for Women

It’s only two years since Cameron gave a Conservative peerage to Karren Brady, a longstanding protégée of David Gold’s business partner David Sullivan — making her his official ‘Small Business Tsar’ in the process

Karen Brady had, after all, begun her career in the Eighties as a director of David Sullivan (far left) and Gold’s (centre) ‘boobs and bums’ premium sex lines, and of their smut-filled Sport newspapers

It should at this stage be stressed that during her 35-year career, Gold has undoubtedly contributed to all three spheres.

Ann Summers, which is based entirely on-shore, employs 10,000 people, including 7,000 female Ann Summers ‘party organisers’, who between them host around 4,000 Tupperware party-style events each week, becoming financially independent while they sell chocolate body paint, fluffy handcuffs, and battery-powered sex toys to guests.

Gold is also a major patron of three charities, and the founder of an entirely commendable campaign to advance women in business through an initiative called ‘WOW’, which organises networking events and mentors female entrepreneurs.

Yet the timing of the CBE, so soon after Gold chose to publicly support the Conservatives, will do nothing to blunt criticism that the British Honours system nowadays revolves around the most tawdry form of political patronage.

In this context, it is certainly intriguing to be able to reveal that Gold was actually turned down for an honour just a few years ago — before she agreed to publicly support the Conservatives.

I gather that aides filed an official application, on her behalf, but apparently without her direct knowledge, in the late 2000s. However it was unceremoniously rejected by the committee of the great-and-good which vets potential appointments.

This year, after she had ventured into politics, the very same committee didn’t just decide to honour Gold with an MBE or OBE, but to instead make her a Commander of the Order of the British Empire, one of the most illustrious awards available.

So why the change of heart?

‘There was almost no real difference between the two Jacqueline Gold applications,’ explains a source close to the process. ‘Her business was just as successful, it employed as many people, and in fact ran a few more stores then than now. Her forms contained exactly the same bumpf about her role helping women in business and campaigning for female empowerment.

Some people have speculated that Tories links with Jacqueline Gold represent a response to the Prime Minister’s so-called ‘women problem’

The timing of the CBE, so soon after Gold chose to publicly support the Conservatives, will do nothing to blunt criticism that the British Honours system nowadays revolves around the most tawdry form of political patronage

Ann Summers, which is based entirely on-shore, employs 10,000 people, including 7,000 female Ann Summers ‘party organisers

‘This time, however, there was one extra factor: Gold effectively now had the Prime Minister’s endorsement. That’s incredibly valuable, because while the process is supposed to be totally independent, in practice, as everyone knows, it works by nudges and winks.’

In light of this revelation, it’s also intriguing to note that Gold’s application for an honour was this year filed (possibly without her knowing) by her PR agent Phil Hall, an urbane former News of the World editor.

Did his impeccable political connections help Gold’s chances of success?

On paper, absolutely not. But neither can they have harmed them much, either. Questions have also been asked about West Ham Football Club, nowadays the family’s main asset — David Gold owns it in partnership with David Sullivan (Karren Brady sits on the board).

It is West Ham who, in an opaque and highly controversial deal, were chosen to take over the Olympic Stadium following the 2012 Games. The stadium, built at a cost to the taxpayer of £429 million, has been converted for use as a football ground at a further public cost of around £257 million. West Ham will pay just £15 million to move there, along with annual rent of around £2.5 million.

That arrangement, which remains shrouded in secrecy, was described as ‘incredibly suspect’ by Andrew Boff, the Tory leader in the London Assembly. Barry Hearn, the sports promoter whose Leyton Orient club also bid for the venue, told this newspaper it was ‘the worst-negotiated deal since the North American Indians gave up their land for a handful of trinkets’.

The extremely favourable contract was negotiated by a quango called the London Legacy Development Corporation, and the stadium’s conversion into a Premier League football ground (West Ham will host matches there from next season) is a crucial part of the so-called ‘legacy’ of the 2012 Games.

Whatever one’s view about the background to this deal, a more pertinent question thrown up by the honouring not just of Jacqueline Gold, but also Karren Brady, is this: why, exactly, are David Cameron’s Tories choosing to get into bed with the protégées of two of Britain’s most notorious porn barons?

Some have speculated that their links with the female duo represent a response to the Prime Minister’s so-called ‘women problem’, which pollsters have waxed lyrical about since a widely reported Mumsnet survey suggested that many female voters thought him too ‘posh and out of touch’.

The theory goes that by parading his links to successful, entrepreneurial businesswomen, Cameron (who once told Labour MP Angela Eagle to ‘calm down, dear’) can undo the perception that his party is dominated by, and speaks largely for, public school-educated men.

This may, by the by, explain his disastrous decision to give a peerage to Michelle Mone, the perma-tanned Scottish entrepreneur whose status as his ‘business start-up tsar’ appears to be increasingly at odds with her ability to make her own businesses turn a profit.

Party organisers between them host around 4,000 Tupperware party-style events each week, becoming financially independent while they sell chocolate body paint, fluffy handcuffs, and battery-powered sex toys to guests.

The theory goes that by parading his links to successful, entrepreneurial businesswomen like Jacqueline Gold, Cameron can undo the perception that his party is dominated by, and speaks largely for, public school-educated men.

Indeed, reporters who raise impertinent questions about Ann Summers, or ask whether its success might have contributed to the sexualisation of the High Street, are often treated to a lecture about how the stores empower or liberate women

Yet if that is indeed Cameron’s thinking, Gold and Brady are hardly the most suitable of champions.

For each owes their career (and much of their wealth) to a business built on the proceeds of one which degrades, rather than empowers, women.

Brady’s mentor Sullivan, who in his Seventies heyday owned 139 sex shops, 20 magazines, 40 race horses and a number of massage parlours, used to boast that the material he peddled was ‘the strongest legally available’ in the UK.

In the spring of 1982, the self-styled ‘Prince of Porn’ was tried at Snaresbrook Crown Court on charges of living off immoral earnings; in other words, of being a pimp.

The alleged offences related to his two London massage parlours, where undercover policemen were offered sexual ‘extras’ by the ‘underpaid and exploited’ female staff who were offering ‘French and Continental’ — as sexual services were euphemistically termed — for £20.

Sullivan denied the charges but was found guilty and sentenced to nine months’ imprisonment. He served 71 days in Wormwood Scrubs and Ford Open Prison.

Brady, whom he hired as a teenager in the late Eighties, has almost never deigned to discuss how her boss’s line of business sits with either her supposed feminism, or her current status as both a peer and a mother. In 2012, on one of the rare occasions an interviewer was brave enough to raise the subject, she said: ‘If Sky TV has porn channels does that mean you’ve worked for a pornographer? That’s how it felt to me . . . What [Gold and Sullivan] were involved in during the Seventies and Eighties is a reflection of them, but it can’t be a reflection of me.’

Jacqueline Gold’s father David, for his part, managed to stay on the correct side of the law throughout his career. But he nonetheless spent the Seventies being dragged in and out of court in deeply unseemly circumstances.

In 1971, he and his company were cleared at the Old Bailey of publishing obscene materials for gain. He was in the Central Criminal Court again in 1975, to defend himself in relation to 11,000 seized magazines dealing with bondage and flagellation. Gold was cleared once again, as he was in another obscenity case the following year.

Shortly before selling his pornographic titles, which he offloaded in 2007, just ahead of the growing popularity of internet smut causing the printed market to collapse, he said unapologetically: ‘I’m a top-shelf publisher. But that’s how I started out, that’s what I am. And I’m proud of everything I have done.’

Jacqueline joined the family firm in the early Eighties, when she was recently out of school, and over the ensuing years, successfully turned David’s small string of Ann Summers sex shops, patronised by what she called the ‘dirty anorak brigade’ into a High Street chain popular with women, which last year turned over almost £105 million.

It was her idea to devote large areas of the stores to selling erotic lingerie, and novelty items such as edible nipple tassels (with sex toys confined to small sections of the shops), since it meant that they would no longer be officially classified as sex shops, which need to be licensed by local councils.

The brand’s success is, she argues, built on good clean fun. And it has been extremely profitable. In the heyday of the ‘Rampant Rabbit’, made famous by the TV show Sex And The City, she claimed that Ann Summers was selling 2.5 million vibrators in the UK each year. Each costs very little to make, but can retail for more than £50.

Like Brady, she has rarely been made to discuss the issue of her father’s association with the porn trade.

In 2005, on one of the only occasions an interviewer succeeded in getting her to address the issue of pornography, the encounter ‘turned a bit chilly’.

‘If you’re talking about hard-core pornography, like most people, I don’t want to see it in stores, or available,’ Gold said. ‘If you’re talking about soft porn, like top-shelf magazines, I personally don’t have a problem with that.’

Asked if she was a feminist, she responded: ‘In the popular sense of the word, no. But I believe in equality for women.’

The Honours committee appears to agree. As, we can only assume, does our Prime Minister.

So it goes that the Most Excellent Order of the British Empire has, like 140 of Britain’s High Streets, now been tarnished by association with Rampant Rabbits, Vibrating Love Eggs, and a family business built on ‘top-shelf’ smut.

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Reitmans: Over 50% Upside On Plus-Sized Lingerie And Athleisure Wear

January 2, 2016 by admin
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Summary

Reitmans is one of the cheapest retailers trading at 2x EBITDA, below TBV and 60% of its market capitalization in cash.

Strong following in plus size lingerie with the Ashley Graham collection. Additional upside from Hyba, Reitmans’s new athleisure wear brand.

Abandoned by Canadian investors due to a dividend cut and poor retail environment.

Author Update
Dec. 6, 2015, 12:25 AM

Reitmans reported its 3Q results last night. Key takeaways are as follows:

Sales were up 80 bps YoY which was very strong considering RET has closed over ~60 Smartset stores over the period.
Same store sales were better than expected, coming in at 7.6%, with a 4.8% increase in physical stores, the best comp in years. Furthermore we saw an acceleration in e-commerce sales. Both items correlate with physical traffic we witnessed as well as GT data.
The company released November SSS, which was a monster 9.1% driven by a 5.5% increase in stores, an acceleration from Q3.
Gross margins more or less came in where we expected them, at ~57.4%, however down significantly YoY. Roughly 60% of the decrease in gross margin were derived from FX. Moreover, we believe there is some margin drag from Smartset store closures as Management liquidates that concept. Assuming margins remain, we expect 1/31/16 full year EBITDA between $50MM to $55MM, implying a 2x EBITDA multiple.
Cash flow from ops was down YoY, however we expect some of this to reverse as Q4 is one of their highest cash balance quarters.
We continue to like the set-up as Reitmans is underfollowed and generally disliked. While retailing is a mediocre to crappy business, RET continues to have catalysts particularly for 4Q which includes upside from Hyba as well as roll-out of Ashley Graham lingerie and clothing in Lord Taylor USA/Nordstroms. Finally we are getting paid to wait with a ~5% dividend yield.

(Editors’ notes: Figures listed are in CAD unless otherwise mentioned).

Reitmans Canada, Inc. (OTCPK:RTMAF) (“Reitmans,” “RET” or the “Company”) is the largest Canadian women’s specialty retailer in Canada, operating 815 stores across 6 brand names. Reitmans represents an attractive long opportunity as the market is overlooking a cash generative business in midst of a turnaround.

Reitmans’s equity has fallen out of favor with Canadian institutional investors as demonstrated by its 50% year to date decline. Due to unfavorable FX movements between the CAD and the USD, Reitmans has felt significant impact to its margins yet these headwinds should subside over time due to better hedging practices, price adjustments and USD/CAD normalization.

Canadian institutional investors also are overly focused on the lack of top line growth and poor historic same store sales, overlooking two free call options: (1) the roll-out of its Hyba athletic wear brand in Canada and (2) continued success of Addition Elle lingerie (backed by plus sized model Ashley Graham) and roll-out of Addition Elle within Lord Taylor in the United States.

As Reitmans exits its turnaround with a smaller yet more efficient store fleet and assuming no further degradation of the business, RET offers an asymmetric return profile of 40% to 100% versus downside of ~20% at the current price.

A long position in Reitmans is merited by the following:

Attractive Valuation: Reitmans currently trades for 2.0x LTM EBITDA, at a 15% discount to tangible book value and at a ~24% LTM EV to FCF yield. This is an undemanding multiple for a business, which has generated positive free cash flow and EBITDA. This low multiple ascribes no value to Reitmans growing its Hyba brand, valuable plus sized lingerie business or partnership with Lord Taylor and other retailers.

Furthermore, recent transactions in the retailing space (particularly women’s fashion) have been consummated at multiples ranging from 7.0x to 9.0x EBITDA. To highlight on a recent example, ANN Inc. (NYSE:ANN) was recently purchased by Ascena Retail Group Inc. (NASDAQ:ASNA) for ~8.5x EBITDA while carrying a similar SSS profile. While in the current retail environment, particularly Canada, Reitmans won’t be bought out at 8x, we believe the founding family could easily take RET private at 4x to 4.5x EBITDA, simply by utilizing a turn of leverage and rolling over their equity stake or partner with Prem Watsa.

Competitive Positioning: Reitmans is the largest women’s specialty retailer across Canada with multiple store formats, 75 plus years of history, particularly in women’s value fashion and plus-sizes. The plus-sized and maternity categories are particularly attractive as they face limited pure-play competition and wider inventory selection versus department stores. RET’s brands are private label which allows for RET to maintain competitive prices while having higher quality items than Wal-Mart (NYSE:WMT), Hudson’s Bay (OTC:HBAYF) or other department store peers.

Note certain bears believe entry by U.S. brands and new plus sized entrants such as Torrid will provide a considerable headwind to Reitmans’s plus sized brands. Our channel checks and Canadian mall sleuthing revealed an entirely different target customer and product as Torrid is akin to a Rue21/HM, versus Addition Elle which tends to be higher quality and at a higher price point. The low-end on the plus size category is also competitive as Torrid will face competition from HM and Forever 21.

Improving Top line Momentum: After five years of consecutive SSS declines, SSS turned positive in FY15 as the Company benefited from a repositioning of its e-commerce division and greater productivity from its smaller store base. Further improvement should translate into improved EBITDA margins, which currently are at an all-time trough of ~7% versus the previous peak of ~17%. Going forward ~8% to 10% EBITDA margins appear to be attainable although not modeled in our base case. Margin expansion will likely come from top line stabilization or growth, FX pressures to decrease, further cost cuts and upside from Addition Elle or Hyba. However, even with flat margins and flat sales, Reitmans’s equity is highly attractive.

Moreover, we expect SSS to continue to uptick driven by the weak Canadian. While a weak CAD impacts margins, it boosts Canadian SSS as Canadian consumers are inclined to spend in Canada versus crossing the border to purchase items.

Reitmans’s e-commerce platform has been a success to date, with revenue growth accelerating throughout the year from ~40% to over 90%, which correlates with positive Google Trends traffic. Note e-commerce carries higher margins due to lower rent expense and labor.

Insider Ownership: The Reitman founding family continues to own an ~18% stake in the Company, as well as hold majority voting control. The family has been fairly conservative stewards of the business maintaining a strong, overcapitalized balance sheet and cutting costs from their bloated cost structure after facing significant top line pressures. Fairfax Financial also owns a ~13% stake and in the past have supported take-private of family owned entities.

Strong Balance Sheet: Reitmans boasts a strong balance sheet with $169MM of net cash or ~60% of its market capitalization. RET’s financial position has allowed the Company to weather heightened competition over the past four years as well as provide flexibility to execute on its turnaround plans.

Free Cash Generation: More telling, over the past four years Reitmans has generated $300MM of cash flow from operations, which has been either re-invested in the business or distributed as dividends. As same store sales comps and EBITDA margins improve, free cash flow generation will undoubtedly grow.

Furthermore, the Company closed ~34 Smart Set stores thus far at the beginning of Q3. Assuming average inventory per store of $0.8MM to $1.0MM, this could lead to an incremental ~$30MM of cash unlocked in 3Q before wind-down expenses for the concept. Reitmans will look to close its remaining 34 Smart Set stores by year-end.

Competition Exiting: Reitmans is a prime beneficiary by Target Canada’s exit (NYSE:TGT), Gap’s (NYSE:GPS) store closures as well as Sears Canada’s (SRSS) continued decline. Core brands from abroad such as Jones New York has faced significant pressure and Mexx have also left Canada, which is perceived as a fickle market. Smaller niche competitors also are floundering, with women’s retailer (also participating in plus size), Laura’s Shoppes and Melanie recently filing for bankruptcy. While the competitive landscape continues to be brutal for Reitmans over the past five years, it is poised to improve as companies such as Reitmans benefits as being one of the “homegrown” survivors.

Low Expectations Create a Favorable Setup: Reitmans’s equity is universally disliked amongst the Canadian institutional community as seen by sell-side reports (covered only by CIBC/BMO both rated “market perform”) as well as discussions with Canadian institutions. Many were previously burned by the dividend cut a few years back and lack of top line growth. Any sign of life and Reitmans equity will likely re-rate.

Why Does this Opportunity Exist?

A long opportunity in Reitmans’s common equity is available due to the following:

Dividend Reduction: In FY13, RET cut its dividend from $52MM to its current run rate of $13MM per annum. This led to a key Canadian index deletion and negative sentiment in Canada for which the institutional community places strong emphasis on dividends. While it is unlikely for RET’s dividend to be increased to $50MM in the near term, as financial performance improves, RET will likely increase its dividend in tandem.

Declining SSS: Same store sales have been meager, declining three years sequentially. In FY15 and 1Q16, same store sales have remained positive as Reitmans right sizes their store base.

FX Headwinds Margin Pressure: RET purchases its inventory from Asia in US dollars and then sells its inventory denominated in Canadian dollars (i.e. COGS in USD and sales in CAD). The decline of the Canadian dollar versus the US dollar has had a negative impact on gross margins, which have declined from ~65% in FY09 to a staggering 55% for the last quarter. Management currently hedges 60% of its FX exposure yet a 1% move in the Canadian dollar is expected to have a $0.5MM impact on operating income.

Moreover, their hedging program was incomplete during 2Q15 for which gross margins declined to 55% from 59.5% the prior, with ~60% of the impact derived from FX movement. Excluding FX, gross margins would have been ~58.3%. While due to the lack of disclosure, we have little ability to forecast gross margins for the next two quarters, we believe over the next two years they should normalize.

Low Float Out of Favor: Reitmans is a Canadian small cap retailer, with low float due to high insider ownership and Fairfax’s stake. Moreover, it has been orphaned by Canadian institutional investors due to the lack of top line growth, a similar phenomenon seen with Imvescor.

Additionally, it was rumored Reitmans was looking at potential alternatives such as a sale a couple of years ago. While obviously that process failed, we’d argue that it was much harder to sell the business at ~8x EBITDA yet at 2x EBITDA it’s materially easier to make a case that it sells for 3x or 4x EBITDA.

Poor Canadian Consumer Outlook: The outlook for the Canadian consumer is bleak, as consumer debt levels are at an all-time high and Western Canada ex. British Columbia is definitely in a recession. This potential risk could be partially hedged out through a short position in a Canadian retailer such as Sears Canada or a handful of Canadian retailers and mall REITs. Moreover, with this overhang and given it’s a retail stock, position sizing plays a big role (i.e. never size retailers large).

No Formal Investor Relations: While it is easy to access Jeremy Reitman, the Company doesn’t participate in conferences, holds no quarterly calls and has no formal presentation, etc. If the Company provides better granularity, has an actual IR outreach or investor day, institutional investors will likely come back to the story.

Business Overview

Founded in 1926 by the Reitman family, Reitmans is Canada’s largest retailer of women’s apparel and accessories with 815 stores across six banners. The largest is Reitmans, which sells to a broad demographic. The Company also has a strong market position in the plus-size and maternity segments. RET has roughly a 4% market share of Canada’s $27 billion apparel market

Store Banners

Reitman: The Reitman’s brand operates 333 stores averaging about 4,600 square feet and is Canada’s largest women’s apparel specialty chain and leading fashion brand. The brand can be seen as a comparable to Express or the Limited, while also catering to the plus sized category (to a certain extent). Note Reitmans recently signed Megan Markle as one of their spokespeople.

Per the below Google Trends data, traffic for Reitmans continues to increase, coinciding with the SSS increases. Notably, we also view similar trends with a consistent increase in Facebook “likes” and Twitter followers over the past three months. For example, Facebook followers have increased by ~4% per month.