Comment by mikikian | Hacker News Reader

Comment by mikikian | Hacker News Reader

Parent Full thread

To learn about the facts leading up to the bankruptcy, a great resource is to read the declaration in support of the first day motions. This is filed under penalty of perjury so there is a reasonable expectation it is factually accurate. From the filing, here are the financial details [1]:

"For the year ended January 31, 2015, the Debtor reported revenues of approximately $85.0 million, gross profit of approximately $34.0 million and EBITDA of negative $6.3 million. For the year ended January 30, 2016, the Debtor reported net revenues of approximately $77.1 million, gross profit of approximately $22.8 million and EBITDA of negative $15.4 million. Through August, 2016, the Debtor has reported revenue of approximately $41.1 million, gross profit of approximately $17.7 million and EBITDA of negative $3.3 million.

The Debtor projects that, for the year ending January 27, 2017, it will generate net revenue of $77.0 million, gross profit of $33.3 million and EBITDA of negative $1.4 million."

[1] https://pdf.inforuptcy.com/pacer/cacbke/1768567/dockets/4/1-...

thanks for those details. For those like me who didn't know:

EBITDA = Earnings before interest, tax, depreciation and amortization

Which in practice means "revenues are lower than we're saying, and losses/outflows/overhead are larger."

Was it really ever an $85M business if it never technically made money? (Per EBITDA)

Yes. When people size a business in dollar terms I think they're usually talking about revenue. Because a) it's a clear, concrete measure, b) it's indicative of consumer demand, and c) it allows you to ignore all of the gross and subtle factors that influence profit. (I think the second-most common way to use the phrase is in market cap terms, but that only works well for publicly traded companies.)

For example, consider this chart of Amazon's revenue versus profit:

http://static2.businessinsider.com/image/56abe654c08a80431d8...

By revenue, Amazon's $136bn company, which I think gives a useful measure of their size. But their profit has always been relatively small, and in many quarters it was negative. Why? Because they think they have better things to do with the money than putting in the bank and/or giving it back to investors.

I think it's an especially good measure here because potential acquirers are going to start with revenue when figuring whether looking into Nasty Gal is worth their time. The mentioned competitor, Boohoo, has revenues circa $240m. So a fire-sale acquisition would be an opportunity to increase sales by circa a third, skipping a lot of the hard work of finding new customers. There are obviously plenty of complications, but it's a good first cut.

Revenue is vanity. Profit is sanity.

Revenue means nothing if you can't flip the profit switch.

There are ways to turn revenue into a vanity metric. But that's true about profit as well.

In the long run, revenue means satisfied customers. That is the economic purpose of business: to create value for others. Yes, you need to do that sustainably, which means giving your investors a decent return. But you'll never make real long-term profits without creating value and taking in revenue.

I don't think this accurately captures the trade-off that exists implicit in things like this, the risk/reward.

Prioritizing profit early on could mean less reinvestment, slower growth, and ultimately less dominance of an industry (or a smaller industry).

Depends on your risk appetite. For many investors, the biggest cost is how much of their time it takes for a projected possible payout.

It's a different argument that people aren't accurately evaluating the inputs. But to hyperbolically state one is vanity, the other sanity, reflects but one perspective.

Reply on news.ycombinator.com