TOMS SHOES, LLC CONSUMER: OTHER EXCLUSIVE ... - …

[Pages:2]Instrument

Coupon

Revolver (USD 80m)

-

TL

Libor+ 550bps 1

Total Debt

Cash

Net debt

TTM adjusted EBITDA

27

Sources: Debtwire, MarketAxess, Markit. 1. Floor of 1%.

TOMS SHOES, LLC CONSUMER: OTHER

EXCLUSIVE EARNINGS REPORT 20 September 2017 NORTH AMERICA

CAPITAL STRUCTURE as of 30 June 2017 (USD m)

Maturity Face Amount Price

Market Amount

Yield

Est. Annual Interest

30 Oct 2019

33

-

33

-

-

30 Oct 2020

307

41.6/45.8

134

42.4%/38.1%

21

340

167

4

4

336

163

Leverage at Face

1.2x 12.6x 12.6x

12.4x

Leverage at Market

1.2x 6.2x 6.2x

6.0x

REVIEW OF 2Q17 RESULTS

TOMS Shoes' 2Q17 revenue fell 23.6% year-over-year to USD 84m versus USD 110m in 2Q16. The company's wholesale business was a source of weakness, as struggling retailers have been adjusting inventory levels.

Management has been reducing promotional activity while focusing on sourcing and inventory control, as part of an effort to improve results. This likely helped maintain TOMS' gross margin, which was flat at 58.4%.

The management team has taken other steps in efforts to enhance profitability, including expansion into products beyond the flagship alpargata shoe line, such as other shoe brands, eyewear, coffee, and bags.

Nonetheless, TOMS' adjusted EBITDA declined more than 72% YoY to USD 5m compared to 2Q16's USD 18m.

TOMS Shoes is highly leveraged, at 12.6x as of 2Q17-end. There was USD 4m of cash and USD 19m available under its revolver.

A core component of TOMS' culture and business model is its commitment to corporate responsibility and improving people's lives. Its products are environmentally friendly, and the company is focused on giving back to the community through its One for One Movement. Founder Blake Mycoskie started the company in 2006 with the idea of giving away shoes to children who need them. For each pair of shoes purchased, the company gives away another to a child in need. It has expanded this philanthropy to other areas, such as providing clean water.

However, the business has struggled since Bain purchased a 50% interest in 2014, and quotes for the TL have been sliding lower. The quotes for the USD 306.5m TL due 2020 have been 12-13 points lower since the release of earnings in August, according to Markit. Its most recent quote was at 41.5/45.8, a decline from the mid-70s at the start of the year.

The earnings, credit metrics and other financial information used in this report are from previous Debtwire stories.

RECENT DEBTWIRE COVERAGE

TOMS Shoes CCR lowered to CCC+ from B? on declined sales to wholesale channel--S&P - 16 August 2017 TOMS Shoes earnings get tripped up by wholesale customer weakness - 10 August 2017 TOMS Shoes CFR downgraded to Caa2 from Caa1 on expected reliance on revolver - Moody's 17 July 2017

BUSINESS DESCRIPTION

TOMS Shoes is a New York-based manufacturer and retailer, primarily of footwear for men, women and kids, but also eyewear, coffee and bags. In August 2014, PE firm Bain Capital acquired a 50% interest in the company and voting control, with founder Blake Mycoskie retaining the other 50%. The enterprise value was reportedly USD 625m, with Bain cutting a USD 169m equity check for its portion. The social mission remains a key component of the company's business, as it gives away a pair of shoes for each one sold, and engages in other missions such as vision treatment and clean water.

Debtwire North America

Reshmi Basu Reporter +1 646 378 3163 reshmi.basu@

Lawrence Rothman, CFA Credit Analyst +1 646 412 5323 larry.rothman@

Seth Crystall Senior Credit Analyst +1 646 378 3105 seth.crystall@

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TOMS SHOES, LLC CONSUMER: OTHER

EXCLUSIVE EARNINGS REPORT 20 September 2017 NORTH AMERICA

Debtwire Story Date:

Revenue Gross Profit Gross Margin Adjusted EBITDA Adjusted EBITDA Margin TTM EBITDA Debt Leverage Cash Availability under Revolver

13-Jun-16 FY12

501.0 N/A N/A 122.0 24.4%

N/A N/A N/A N/A

13-Jun-16 FY13

463.0 N/A N/A 75.0 16.2%

N/A N/A N/A N/A

FINANCIAL SUMMARY (USD m)

10-Apr-17 13-Jun-16 10-Apr-17

FY16

2Q14

4Q15

N/A

N/A

91.9

N/A

N/A

N/A

N/A

N/A

N/A

43.3

N/A

(4.0)

N/A

N/A

-4.4%

72.0

N/A

>307

N/A

N/A

>7.1x

N/A

N/A

8.0

N/A

N/A

17.5

N/A

N/A

13-Jun-16 1Q16

N/A N/A N/A 19.8 N/A 37.0 356 9.6x 10.0 8.0

Sources: Debtwire, rating agencies.

The basis for TTM EBITDA is the amount provided in the story or calculated based on leverage. Certain information and periods are not available since this is a private company, and so there is limited access to its financials.

10-Aug-17 2Q16

110.0 64.2 58.4% 18.0 16.4% N/A N/A N/A N/A N/A

10-Apr-17 4Q16

84.4 N/A N/A 1.0 1.2% 43.3 >307 >7.1x 8.0 17.5

10-Aug-17 2Q17

84.0 49.1 58.4% 5.0 6.0% 27.0 340 12.6x 4.0 19.0

Company name

Enterprise value

Skechers USA

3,557

Steven Madden

2,365

Under Armour

8,176

Wolverine Worldwide

3,035

Peer Average

TOMS Shoes

336

Sources: Debtwire, peer companies, S&P Capital IQ.

PUBLIC COMPANY COMPS (USD m)

TTM EBITDA

TTM EBITDA multiple

NTM EBITDA

NTM EBITDA multiple

431

8.3x

495

7.2x

205

11.5x

218

10.9x

526

15.5x

466

17.5x

271

11.2x

310

9.8x

11.6x

11.3x

27

12.4x

TTM Revenue

3,821 1,485 4,982 2,523

N/A

Revenue multiple

0.9x 1.6x 1.6x 1.2x 1.3x N/A

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