Isabel Marant - Truth is in the docs

All,

Please find our updated analysis on Isabel Marant here. 

Isabel Marant remains a frustrating name for analysts. The bond documentation is extremely porous, and with limited control over the brand name, it is challenging to propose a long investment in its bonds. Operationally, the Company are making some progress, albeit uneven. While there has been notable advancement in the retail segment, the overall performance continues to be constrained by the wholesale segment. However, the poor protection in the bond documentation, we still view the situation as uninvestible. 

Investment Considerations:

- We are still not taking a position in the bonds. There is significant downside risk with any restructuring, and without support from IM Creation, Isabel Marant’s vehicle, creditors have limited control over the brand name. 

- The Group owns the rights to the principal brand names, but we can’t find a specific J.Crew blocker that would make us comfortable that a drop-down into an unrestricted subsidiary wasn’t possible. 

- Operationally, the Company has improved its direct channel, either in-store and via online sales, and continues to show growth, demonstrating the brand’s strength. 

Q2 Results:

- Management has delivered strong growth in the direct-to-customer channel, both online and in physical retail, where revenue increased by 20%. However, the wholesale segment continues to decline, although at a slower rate than in previous quarters. On a consolidated basis, revenue rose by 8 per cent year on year in the second quarter, with EBITDA remaining broadly flat.

- Leverage stands at approximately 5.4x on a post-IFRS 16 basis, which is high for a business with limited tangible assets. Nevertheless, Isabel Marant maintains adequate liquidity, with €33m in cash and a further €15m available under an undrawn RCF. The next bond maturity is not until February 2028, which supports the investment case at 62%; the 13% running yield appears attractive.

- Caution is required, with Isabel Marant's pre-IFRS 16 basis leverage is 9.5x. Even at 62%, leverage remains high at 6.1x EBITDA, and that is without the founder/management’s requirement to be accommodated in any future restructuring.

We reiterate our previous work on the legal, highlighting our concerns regarding the documentation.

Happy to discuss. 

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk