Q3 2023 Plby Group Inc Earnings Call

Participants

Ashley DeSimone; IR; ICR

Ben Kohn; CEO, Director & President; PLBY Group, Inc.

Marc Crossman; COO & CFO; PLBY Group, Inc.

Jason Tilchen; Analyst; Cannacord Genuity LLC

Greg Pendy; Analyst; Chardan Capital Markets, LLC.

Presentation

Operator

Good afternoon, everyone, and welcome to PLBY Group's third quarter 2023 earnings conference call. Hosting today's call are Ben Kohn, Chief Executive Officer, and Marc Crossman, Chief Financial Officer and Chief Operating Officer. (Operator Instructions) While we wait for the queue to fill, I'd like to hand the call over to Ashley DeSimone of ICR.

Ashley DeSimone

Thank you, operator. Good afternoon. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K and Form 10-Q filings made today by PLBY Group, which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast, and a replay will be posted to PLBY Group's Investor Relations website.
Please note that statements made during this call, including financial projections or other statements that are not historical in nature may constitute forward-looking statements. Such statements are made on the basis of PLBY Group's views and assumptions regarding future events and business performance at the time they're made, and we do not undertake any obligation to update these statements.
Forward-looking statements are subject to risks which could cause PLBY Group's actual results to differ from its historical results and forecasts, including those risks set forth and PLBY Group's filings with the SEC. And you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements.
During this call, PLBY Group may refer to non-GAAP financial measures, such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release PLBY Group filed with its Form 8-K today and in its Form 10-Q filed.
With that, I will hand the call back over to operator to begin the Q&A session. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Jason Tilchen, Canaccord Genuity.

Jason Tilchen

Great. Good afternoon, and thanks for taking the question. First off, I'm curious, you mentioned in the press release that you're not 100% convinced about selling Honey Birdette. I'm just curious what are some of the different factors you're weighing as you think about that asset and how it fits into your broader platform going forward? Maybe what are some of the options beyond continuing assets that you're currently looking at, at the moment?

Ben Kohn

Thanks, Jason. Good afternoon. It's Ben. I think right now, we are making the operational improvements we've talked about in previous calls to Honey Birdette. As we said today, we are instituting a 10% price increase that will start in the fourth quarter, and it will take us really until probably the second quarter of next year for all products. But we have not raised prices in the last two years. And yeah, we have faced rising inflation with wages, product costs, and shipping costs. We've also changed our free shipping as well as our expedited shipping policies. And we have other cost measures that we're taking.
Given the macro environment right now from M&A and especially on the retail side, we don't think it's the right time to maximize shareholder value by selling that. However, we are looking at strategic alternatives and are pursuing partnerships, where we might be able to bring in a partner to help us grow the business without using cash from our balance sheet.

Jason Tilchen

Great. That's really helpful. And then just a follow-up, not on Honey Birdette, but on the licensing business. You mentioned in the prepared remarks in the press release about potentially having a Chinese private equity firm making an offer for some of the Chinese trademarks. I'm just curious if you could expand a little bit about how that would impact the shape or trajectory of the licensing business in that market going forward?

Ben Kohn

Sure. There's not much I can say at this point. What I can say -- and we talked about this in the press release as well, over the past few months, we've done extensive audits of our old partners, both from a legal and financial perspective. We saw multiple violations and incurable violations of those agreements, as well as we've talked about previously, they haven't -- all partners have not been paying us. So we have decided to terminate a number of them.
We have strong interest from some of their subs as well as new partners that might be interested in licensing the brand. And at the same time, we received an unsolicited offer to buy our IP. We are still evaluating that deal and whether that deal makes sense for us or not, given the business, the valuation, the geopolitical situation, et cetera. In its current format, we would be selling all of our China business, and we would not have a China business moving forward, but a return we would receive a significant amount of cash. But again, it's early in that and we're still evaluating it from a company perspective.

Jason Tilchen

Great, that's really helpful. And just one last one. I was wondering if you could perhaps share some of the -- an update on some of the key metrics that you've been discussing in regards to the creator platform that you shared a lot about, plans to sort of change that rebranding and also, introduce membership. I'm just curious as to what are some of the underlying trends that you're seeing on recent months?

Ben Kohn

Yeah, we're still very happy with where the creator platform is. Moving forward, we're not going to be talking about GMV, because that is not the metric by which we think we should be judged. What we're going to be talking about is digital revenue. I think that we are not -- to be clear, we are not trying to compete with OnlyFans. We don't believe in being Costco at Playboy, but I think we've view ourselves more from -- as a Neiman Marcus than a Costco. And so we think we have a way of -- with the Playboy Club, which really from the people we've talked to, resonates with people. It makes sense, this is the place to interact with creators.
But also, the addition of membership, we have ways for creators to make more money with Playboy than any other platform. We're building on an affiliate program where they can sell memberships and get paid. They can participate in live events. There's a really unique value proposition for membership. And so for us, it's much more about revenue.
We also believe with the creator tiering that we've rolled out that OnlyFans has set the market at 80-20, we don't think 80-20 for a creator platform split is necessarily relevant, nor should that be where we are moving forward. And so -- sorry, not to answer the question directly, but we're going to be focusing on digital revenue moving forward as we're bringing our whole entire digital ecosystem together into one offering.

Jason Tilchen

Great, that's very helpful. Thanks a lot.

Operator

Greg Pendy, Chardan.

Greg Pendy

Hey, guys, thanks for taking my question. I'm just flipping back over to Honey Birdette. Can you just kind of let us know, what are you seeing in terms of the ability to raise prices? You said you're going to be doing it gradually over the next six months. Where do you think competitively the retail environment in that space is positioned?

Ben Kohn

Thanks, Greg. Yeah, look, I think October is a great example. And we talked about this, but October of '23 versus October of '22, which is a month that we had no sales in either year, we were up 16% year-over-year. And so with the right product, we are easily seeing the demand for that. We've also made changes already to expedited shipping to free shipping thresholds.
We have not seen any impact to consumer demand for the product. And we believe that we have room to raise prices. Obviously, labor and other costs have gone up. And when you look at the competitive landscape, we've seen others raise prices, we have not. And so that is something that we will start implementing here in the fourth quarter. And just given how we tag items based on the factories, it will take us until the second quarter to have that across our full product suite.

Greg Pendy

Right. And then just one more on Honey Birdette. Can you just remind us what the store base sits at right now, where it was last year, and if there are any plans for new stores?

Marc Crossman

Yeah. So Greg, it's Marc. Right now, store base has got 48 in Australia. We've got 12 in the US, and we have 3 in the UK. And since then, we had opened I think, a year ago, three new stores. I'll get the exact number for you, but I think that was in the US.

Ben Kohn

Greg, I think we would like to open new stores. I think that we are committed to becoming a capital-light model -- to moving to that capital-light model we talked about. We don't think that's the best use of shareholder capital on our balance sheet, just given our limited resources and the debt that we have. But we are we are exploring, as we said, strategic alternatives to potentially bring in a partner to help us expand that business. It's just not the right time for us to sell 100% of it after consulting with our advisors based on the macro environment.

Greg Pendy

Makes sense. Okay, thanks a lot.

Operator

We have reached the end of the question-and-answer session. Therefore, I'll turn the call back over to management for closing remarks.

Ben Kohn

We appreciate everyone listening, and we look forward to talking to you on our next call to discuss the full year 2023 results. Thank you.

Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.