B. Riley Financial Inc. in Woodland Hills has seen its stock price rise 13 percent, or more than $2.90 a share, since reporting in early August record quarterly revenue of nearly $165 million in the second quarter. That result continues a trend of consistent growth the financial services company has enjoyed since the start of 2019, when the company’s shares were trading at $14.10. Shares closed Aug. 28 at $20.47.
But what strategy has pushed B. Riley’s steadfast performance?
In the firm’s most recent quarterly report, Chief Executive Bryant Riley awarded substantial credit to Woodland Hills-based subsidiary Great American Group’s liquidation projects, including those of bankrupt apparel companies Gymboree Group Inc. and Payless ShoeSource Inc., the latter of which was the largest retail liquidation by store count in U.S. history.
Payless filed for Chapter 11 bankruptcy protection in February. Sales facilitated by Great American Group at about 2,100 stores liquidated inventory valued at more than $1 billion.
“We expect this business to remain active as the retail landscape fundamentally continues to evolve,” Riley said in an earnings conference call on Aug. 1.
Gymboree filed for Chapter 11 bankruptcy protection in January, and liquidated inventory at nearly 800 stores in the U.S. and Canada.
Following these liquidations, revenue for B. Riley’s auction and liquidation segment jumped to $34.9 million, up from $26.8 million in the same period a year ago. Results were also up from the first quarter of 2019, when the segment recorded revenue of $20.7 million.
Great American Group started several new liquidation projects in July, including for home décor and furniture brand Z Gallerie and California home entertainment chain Dimple Records.
During the call, Co-Chief Executive Tom Kelleher said the “ongoing shift impacting the retail and consumer industry” should keep the company busy.
The company’s activity in the apparel niche of the retail sector also included a joint investment of $218 million into luxury department store Barneys New York, which filed for Chapter 11 in August. The capital injection was made in partnership with New York firm Brigade Capital Management.
Acquisitions pay off
A few acquisitions by B. Riley that closed in the last year also yielded significant gains in the second quarter.
One is GlassRatner, a shareholder proxy advisory and consulting firm the company added in August 2018. Riley said demand for GlassRatner’s bankruptcy restructuring, litigation support and due diligence advisory services is high, and that the addition is largely responsible for the strong performance of the company’s capital markets segment, which saw revenue increase to $94.2 million, up from $77.8 million in the same period a year ago.
“This business has experienced tremendous growth and momentum over the last year and has complemented our existing advisory business,” Riley said.
B. Riley’s principal investments segment also recorded a major revenue bump, raking in $25.8 million, up from $11.4 million in the same period a year ago. Riley said this growth was driven largely by the acquisition of magicJack, a company that makes devices for internet-based telephone services, in November.
In connection with the second-quarter earnings report, the company’s directors approved an increase to B. Riley’s quarterly dividend from 8 cents a share to 17.5 cents. They also declared a special dividend of 32.5 cents a share, which amounts to a total of 50 cents — the highest quarterly dividend in company history.
“The increase in our dividend is consistent with the steady growth of our business, which has grown both organically and through our acquisitions,” Riley said in a statement.
In the earnings call, Wes Cummins, an analyst with investment advisory firm Nokomis Capital LLC, asked Riley how the company rationalized its decision to return capital to shareholders via the dividend against its own balance sheet.
Riley responded by calling the decision “one of the greatest challenges we have.”
He explained: “We have two businesses that have done over $50 million in the first two quarters. And to the extent that those businesses are strong, we are going to reward our shareholders with a meaningful portion of that.”
