Hi, and welcome back to Line Sheet. In today’s Inner Circle issue, I’ve got an end-of-earnings-season
wrap-up, the scoop on an avalanche of new fashion docs, and a first-half update from the Condé Nast board meeting: Is C.E.O. Roger Lynch staying? What is chairman (and controlling shareholder) Steven Newhouse thinking? Will I ever leave these people alone?
Also, if you read my buddy Bill Cohan’s piece about the state of Saks in yesterday’s Dry Powder, but couldn’t understand half of what he was talking about, I’ve included an annotated version here. (This bespoke service is why you should upgrade to the Inner Circle!)
Programming note: Tomorrow’s Fashion People guest is Sarah Harrelson, founder and editor-in-chief of
Cultured. Sarah and I have gotten to know each other over the past five years while living in Los Angeles and being seated together at pretty much every dinner. She has a lot of smart things to contribute to the state-of-media discourse, and we also get into the differences between how the art and fashion worlds operate, etcetera. Listen here and
here.
Another sort of programming note: In Tuesday’s piece about Document, I misquoted some issue release dates. In 2025, there will be two new issues of Document, one released imminently and another in November. The first issue of the industry-specific spinoff Notes on Beauty is scheduled for early September. Also, as another
person noted, a printer that Document and a lot of other indie mags use—Die Keure in Bruges—is closing, which may have delayed the most recent issue. All further compliments, questions, and complaints should be sent to Nick Vogelson!
Mentioned in this issue: Anna Wintour, Condé Nast,
Roger Lynch, Jonathan Newhouse, American Vogue, Calvin Klein, Andrew Rossi, Sofia Coppola, LVMH, Kering, Prada Group, Andrea Guerra, Saks Global, Lorenzo Bertelli, and many, many more… |
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Three Things You
Should Know…
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- Fashion documentary
madness: There are a slew of fashion documentaries in the works, or completed and set to be released, starting with Marc by Sofia, Sofia Coppola’s Marc Jacobs project, at the Venice Film Festival later this summer. Another is Karl, Nick Hooker’s Karl Lagerfeld film. (Hooker directed Everything Is Copy, the Nora Ephron documentary, as well as AKA Mr. Chow, and
Agnelli.) But wait, there’s more! Real heads will be excited for the one about the late, truly incredible Polly Mellen, directed by Douglas Keeve of Unzipped renown. (Wow!) There’s also a Calvin Klein take from Andrew Rossi (The Andy Warhol Diaries and Page One: Inside The New York Times), although I hear Klein is not participating.
- Was this the scariest
earnings season in the history of Big Luxury?: There’s no getting around the fact that LVMH, Kering, and the Prada Group all missed analyst expectations. Even shares of Hermès, which posted increases in every region of the world, fell due to fears of a further slowdown. The rest of the year is going to be incredibly tough, China is not bouncing back anytime soon, and the best way to get through this is by meticulous, careful brand management.
For what it’s worth, on the most
recent earnings call, Prada Group C.E.O. Andrea Guerra said that he believes we’ve seen “probably the worst” of it, categorizing luxury as an “industry that is resetting after 20 years of almost constant growth” and also fighting a “cyclical downturn basically led by tourism.” Notably, Guerra ceded the floor to Lorenzo Bertelli, the heir apparent in the organization, on several occasions.
Guerra made an interesting comment in response to an
analyst question about Versace, which the group is in the final stages of acquiring. “The other big thing is not to kill the baby while you cure it,” he said. “So we will go as fast as we can, and as prudent as we can, in terms of branding and identity positioning.” To me, that touched on a larger point: As the luxury industry exploded, companies were forced into categories, and product lines, that no longer seemed authentic to their brand DNA, and now everyone is paying the price for the
resulting homogeneity—reversing course, and reducing costs, while they reposition and refocus their businesses. (P.S. Luca Solca and I will cover all this and more on Monday’s episode of Fashion People.)
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| William D. Cohan
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- The Saks short,
annotated for fashion people: The vaunted Saks Global exchange offer1, for its $2.2 billion of 11 percent senior secured notes2, is finally underway. The first closing of the exchange comes this Friday, August 1, with the balance closing August 18. In case you had somehow forgotten, the bonds3 were issued last December as part of the financing package for Saks’ $2.7 billion acquisition of Neiman Marcus Group. For a variety of reasons, the bonds traded down
to a low of around 35 cents on the dollar during the last six months—all but necessitating the restructuring deal that the company is in the process of executing. It’s become one of the more high-profile “liability management exercises” of the year.
On July 21, in a hard-to-decipher press release, the company said that holders of approximately 92 percent of the bonds had already agreed to tender them in the exchange offer after engaging in a series of private negotiations with the
company. In exchange for their bonds and an agreement to provide $600 million of new financing, they are going to receive a series of new notes, of varying priorities, with a face value of roughly 90 cents on the dollar. So by providing the company with a fresh $600 million—good money after bad, perhaps?—they get a boost up in the capital structure4, and the chance to think they’ve exchanged something worth 35 cents on the dollar for something worth around 90 cents on the
dollar (and probably increase the marks on their books, which is a bit of a scam if you ask me).
As for the holders of the other 8 percent of bonds, they have some interesting choices to make. They can do nothing, keep their old bonds, and hope the company keeps paying the 11 percent coupon, as well as the principal when it’s due in 2029. (There are always some bondholders who follow this route.) But if the company files for bankruptcy, which remains a non-zero possibility, they will get
thoroughly hosed, because they’ll be last in payment priority in the restructured capital stack. However, if they want to participate in providing some of the new $600 million, they will get 55 cents in second-lien notes, and 25 cents in the third-lien notes5. So they’ll get to think they are exchanging something worth around 25 cents on the dollar—where these bonds seem to be trading these days—for something worth 80 cents on the dollar, on paper. If they want to participate in the
exchange, but not the new financing, they will get 20 cents in second-lien notes, and 55 cents in third-lien notes.
No matter how you slice this complicated deal, the exchange offer is a big win for Saks Global, which already has half the promised new financing in hand, and the two legal and financial advisors—David Nemecek at Kirkland & Ellis and Jamie Baird at PJT Partners—who were its architects. Essentially,
what Saks Global bought for itself here was more runway and a bit of a fresh start with creditors6. But now Saks’ management team must use that time to perform. If it doesn’t, the whole ship could go down, probably soon after the Christmas holiday, the period when many retailers make most of their profit—if they are going to make any profit, that is.
I talk to a lot of hedge fund managers who have been shorting7 the Saks bonds for a while now. Some of them
sold their bonds as they traded down. They’ve made money. Others are holding on, hoping to continue the ride downward. And they’re all eager to borrow the new bonds and short them, too, believing they will trade down as well. They are biased, of course, and make money only if Saks Global tumbles into bankruptcy or needs yet another restructuring. The question for them is, will that happen before Christmas or after? “This thing is insane,” one of them texted me on Monday. “I am trying to short
anything I can.” (As usual, this is not investment advice.)
1. exchange offer: a fancy way of saying a trade
2. senior secured notes: debt that is less risky than other debt
3. bonds: basically an I.O.U. on debt
4. capital structure: combo of debt and equity that a company can access
5. second or third-lien: debt that will be paid after the most prioritized debt, but before anyone with equity sees a return on their investment
6.
creditors: anyone who is owed money by Saks Global, including bondholders and also vendors
7. shorting: making a financial bet that a company will fail in the future—or at least that its debt and/or equity will trade down—and profiting off that bet
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And now, the latest at Condé… |
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Condé Nast is on target to miss $1 billion in revenue this year, a somewhat stunning but not
entirely unpredictable milestone. Is this all Roger Lynch’s fault, the natural order of things, or simply the Newhouses’ plan? |
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The Condé Nast board of directors typically meets once a quarter. (Often in London, where Jonathan
Newhouse is based, but not this time.) There were likely no surprises at the midyear review that took place in late July. Sure, some members of the board were frustrated by the messaging around Anna Wintour stepping back(ish)—not only to the public, but also to the board and the internal commercial team. Regardless of whether the maneuver was the first step in her ultimate succession—the very definition of a board matter, by the way—a cleaner rollout could have
helped the business. The sales team would have already been in the market charging a premium for advertisers to support her final issues of American Vogue. Many people, including members of the revenue team, have felt that an opportunity was squandered by senior executives, who recommended against a formal announcement.
But when it comes to the 2025 numbers, there’s no way the board blinked twice. On top of the revenue loss attributed to the GQ China licensing mess,
global advertising revenue is down, and so is web traffic. A formerly $2 billion global advertising business is now, by multiple accounts, less than half that figure. Global gross revenue, including advertising, subscriptions, and commerce, will likely not reach $1 billion this year, according to people familiar with the figures. A rep for Condé Nast said those numbers were “way off base,” but declined to share any figures. |
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To be fair, the Condé Nast board, and the board of parent company Advance, are more focused on EBITDA. During
his seven years in charge of the global organization, C.E.O. Roger Lynch has meticulously and ruthlessly cut unnecessary costs and overseen the elimination of hundreds of jobs in multiple rounds of layoffs. Most notably, he essentially collapsed Condé Nast and Condé Nast International—two companies that never should have operated separately—into one.
Lynch’s mandate was the sort of functional, boring, necessary work that a new generation of Newhouses coveted, but was
never designed to play well at a company filled with nostalgic creatives and sales directors, many of whom knew the staff at the Four Seasons Milan by name, and never questioned the economics behind their paychecks. But Lynch, an experienced C.E.O., unlike his homegrown predecessors, was hired to financially restructure the company first, and figure out the culture later. The Newhouses, who increasingly managed the company through their family office in the post-Si days, were
subsequently freed up to diversify their time and capital allocation. It was the dynastic version of shipping one kid to military school while seeing everyone else off to Harvard and Yale.
Lynch has more or less followed his orders. In 2021, the very private company very publicly reported in the Times that it had made a profit, perhaps triggering some sort of personal windfall for Lynch. Of course, insiders who are unimpressed by Lynch’s leadership style will point to a
bunch of footnotes under that positive EBITDA—several fixed costs (building fees, long-term severance packages, etcetera) that are not factored into his P&L. Many also note the shrinking revenue, and the fact that it has come with an erosion of residual relevance. But regardless of whether he enjoyed some advantages, Lynch has done what he was asked to do: unsentimentally streamline a decadent business with bottom-line sensitivity, all without tanking the whole enterprise, and keeping
the owners’ noses clean in the process. |
Lynch’s most significant challenge, however, has been communicating the endgame of his frankly
unglamorous task. In a world beholden to ChatGPT, where investors are pumping more than $40 billion a quarter into artificial intelligence and chip manufacturing companies and cloud storage, Condé Nast has long since entered the Kodak-Polaroid descent cycle. One of the quirks of the company, however, and the people who make its products, is a largely resolute refusal to accept this reality.
So rather than resentfully appreciating Lynch’s attempts to balance the books, many have instead
focused on his inability to resurrect individual brands and lines of business. His attendance at various company tentpoles has been construed as a form of celebrity infatuation and navel-gazing rather than customary C.E.O. head-patting and Delta One patronage. And yes, at a shallow and vain company, it doesn’t make it any easier that he looks like a character out of Archie. |
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Lynch has received the most grief for not laying out any sort of discernible game plan to set up these
businesses for long(er) term growth. But the truth is that it’s nearly impossible to do so, given the state of the media business, and Condé Nast in particular. His critics point to the fact that he was gifted Wintour and some larger-than-life brands, but neither advantage was enough to overcome the industry headwinds. Vogue has gotten smaller under Wintour, and it will get even smaller after she exits. Lynch’s job was to build a plan around that reality.
In some
ways, it seems like Lynch’s job is sorta done. Condé Nast may be filled with predictable dissension—shrinking business, roiling union headaches, aggrieved employees—but it’s a real company now, not a family plaything. And while there’s no indication that Lynch is going anywhere, I’ve been told that some board members treat him like a spouse they want to divorce but never will. (Cue Carrie Fisher in When Harry Met Sally: “He’s never gonna leave her.”)
Some wonder
if Lynch could eventually join the board and advise in the search for his successor. (A Condé Nast rep had no comment on this speculation.) But who would that be? Lynch would likely be succeeded by a lesser spreadsheet artist with fewer connections—someone who is currently eating a tuna salad sandwich over a printed-out Excel file, and not even reading this story. There’s no way that Jonathan Newhouse wants the job anymore, despite his interest back in 2018.
But what does
Steven, the Newhouse with all the power, want? While the Newhouses are richer than ever, thanks to smart investments in Reddit and a recent liquidity event from Warner Bros. Discovery, the powers that be at parentco Advance—the real company, as people internally like to say—are, as I’ve reported previously, watching the spending at Condé Nast more closely than in the past. The hardest thing for many to grok, inside and out of the company, may be the reality: For people
who can afford whatever their hearts desire, what if they just want this? |
What I’m Reading…
and Listening To…
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Interesting story about (former) LVMH lifer Serge Brunschwig leaving OTB-owned Jil Sander
after six months. [WWD]
Los Angeles–based food writer Emily Wilson, who covers the restaurant scene in an old-school Eater kind of way, is moving back to New York. As a last hurrah, she wrote a list of 20 things she won’t miss about eating in Los Angeles. I agree with most of it, and was amused by all of it.
Dan Tana’s is pretty nasty. [The Angel]
Pete Nordstrom interviewed his big get—the legendary personal stylist Catherine Bloom—for his
genuinely good podcast. [The Nordy Pod]
The last time I landed in Paris—during a Fashion Week, mind you—I immediately headed with my laptop to my home-away-from-home café, and was sadly greeted with a sign noting that they were… closed for the week. During a Fashion Week! American in Paris Lauren
Collins has organized her favorite “closed for vacation” signs. It’s a lovely little note that will give you a taste of her totally-worth-the-subscription newsletter. [Lettre Recommandée] |
Until tomorrow,
Lauren
P.S.: We use affiliate links because we are a business. We may make
a couple bucks off them. |
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