Playboy Inc (PLBY) 2020 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Fourth Quarter and Full year 2020 Conference Call and Webcast for PLBY Group, Inc.

The information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PLBY Group Inc. and may be accessed on the SEC's website. Please note that the press release issued this morning and the related Form 8-K can be found on PLBY Group's website at http://www.plbygroup.com/investors. Today's call is also being webcast, and a transcript will be posted to our website.

Please also note that statements we make during this call that are not statements of historical facts constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ from historical results and/or from our forecast, including those set forth in PLBY Group's Form 8-K filed today and the exhibit there too.

For more information, please refer to the risks, uncertainties and other factors discussed in PLBY Group's SEC filings. All cautionary statements that we make during this call are applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks, uncertainties and other factors discussed in PLBY Group's SEC filings. Do not place undue reliance on forward-looking statements, which we assume no responsibility for updating.

Hosting today's call are Ben Kohn, Chief Executive Officer; Rachel Webber, Chief Brand Officer and President of Corporate Strategy; and Lance Barton, Chief Financial Officer.

I will now open the call to Ben Kohn. Ben, please go ahead.

Thank you, operator. Good afternoon, everyone. It's a pleasure to be speaking with you on our first earnings call following our listing on NASDAQ earlier this year. I want to start by thanking our employees and management team, who in an unbelievably difficult year not only had to endure new ways of working together, but conquered that while achieving major growth, growing revenues 89% year-over-year.

PLBY Group is a pleasure and leisure company, serving consumers around the world with products, services and experiences to help them look at, feel good and have fun. Our flagship brand, Playboy, is one of the most iconic and valuable brands in the world. Simply speaking, Playboy is huge. Our massive global reach drives $3 billion of global consumer spend with products sold in over 180 countries. We engage with millions of people every day across our own channels and social media, and our reach continues to grow with our built-in network of ambassadors. No brand gets noticed quite like the Rabbit Head. And in today's increasingly cluttered and fickle environment, Playboy has a special power to both stand out and to last.

Our strong resonance with the next-generation of consumers around the world sets us up for significant future growth and provides us with a platform that we believe can be synergistic to promote other owned brands and become the leading pleasure and leisure company. PLBY Group is focused on 2 key revenue models, direct-to-consumer sales and licensing sales, and this focuses on 4 product categories with growing multibillion-dollar global markets, sexual wellness, style and apparel, gaming and lifestyle, and beauty and grooming. We are still in the early stages of our business model transformation to own and operate within these key consumer product categories, and we have seen great traction so far.

With the over $100 million we raised through our recent business combination, we now have a robust balance sheet and the capital market currency to make thoughtful, educated and data-backed decisions to accelerate that growth moving forward, both organically and through acquisitions. Our growth plan is comprised of 3 areas of focus: first, accelerating the growth of our U.S. direct sales business. In 2020, we saw phenomenal growth across our direct sales platforms and believe we are only just getting started.

To capitalize on this massive opportunity and momentum, we recently brought on a new Chief Digital Officer, Kevin Diamond. Kevin joins us from Forever 21 where he ran a $700 million business. Prior to that, he co-founded HauteLook, which was acquired by Nordstrom. Kevin joins other recent e-commerce and digital hires from GOAT and FabFitFun.

In the short term, our direct sales efforts will be focused on the domestic market in the sexual wellness and style apparel categories. In the medium to long term, there are huge opportunities to own the relationship with customers internationally as well. For example, in China this year, Playboy-branded products generated over $1 billion in sales on digital commerce platforms alone. But based on existing licensing agreements today, we booked less than $40 million in total revenue. Therefore, as we continue to transform our model, the potential upside is enormous. In 2021, we will continue to evolve our [hero] website, playboy.com, into a lifestyle shopping experience and to expand our own product offerings.

Our recent acquisition of Lovers brings with it strong private labeling, product development and merchandising expertise, which we are already applying across categories to capture substantial margins, and to expand consumer lifetime value. We will continue to unlock the significant value we see in our network of digital commerce marketplaces, including the Playboy, Yandy and Lovers destinations, by cross-selling products to our consumers and by using our new data science practice to increase customer lifetime value.

Our 2020 test runs of Playboy-branded lingerie and costume collections that were cross-sold across channels were very encouraging and helped inform this year's merchandise and cross-channel strategy as well as new growth initiatives. We also started selling licensed streetwear products on our website in late 2020 for the first time. This is just the beginning of our strategy to capture more of the economics of the huge consumer spend on our apparel offerings.

Our streetwear offerings have been growing rapidly since 2018. And in 2020, our 2 biggest streetwear partnerships with Pac Sun and Missguided drove more than $100 million in sales. We're, of course, thrilled by this consumer response, but these licensing models traditionally only generate $0.05 or $0.06 on the dollar for us and don't allow us to build a direct consumer relationship. In 2021, we're making investments aimed at capturing 100 cents on the dollar by building out our in-house design and production teams and taking back the influencer drop operation, Playboy Labs, to be managed internally as an owned and operated consumer product line.

Our second area of focus is strategically expanding our licensing partnerships in targeted categories and regions. Licensing is a tremendous revenue model that provides stable and predictable cash flows, global diversification and consumer data insights can help inform our owned and operated business development strategies, including our future product road map for direct sales. Playboy is already in the top 20 most licensed brands in the world. And yet still, in 2020, we achieved 20% year-over-year growth, and we see big potential ahead.

A few highlights. In China, despite the challenges of COVID, the brand performed incredibly well, with an uptick in digital spending as consumers spent more than $1 billion in e-commerce sales alone. As part of our China e-commerce strategy, we worked hand-in-hand with major e-commerce platforms to enforce our trademarks and recapture unauthorized sales. Similar to how we've expanded our addressable market in the U.S. and U.K. with female customers, we worked with 3 key influencers in the Chinese fashion industry to launch collaborative lines of women's apparel and accessories serving as the foundation for us to continue our push into the women's market. We see big growth potential going forward to expand our additional product categories for men's such as men's skin care and grooming and to continue to serving a new generation of both male and female consumers with our apparel and fashion lines.

In India, we recently announced a partnership with Jay Jay Iconic Brands to adapt our existing streetwear success to meet young Indian consumers, swelling demand for streetwear fashion. We believe India could be a significant contributor to our revenue in the years ahead across all of our core product categories.

In gaming, we are focused on expanding our licensing business, having cleaned up significant rights in the category in recent years. In addition to our existing partnerships with Microgaming, Scientific Games and Caesars, we have recently signed new deals to launch poker rooms in Texas and to roll out real money electronic table games with Interblock. We believe there are significant opportunities to expand gaming activities in iGaming, sports gambling and social gaming.

And of course, we continue to set up our licensing business to optimize across all territories and product categories by freeing up rights, which have been previously been encumbered. We are now looking for new partners to exploit those rights. Across all of these efforts, we will balance the trade-off between owned and operated offerings and licensing to make the best long-term decisions to drive significant return on investment, revenue growth and shareholder value, which brings me to our third area of focus, emerging growth opportunities.

Although we have a core business that is growing and highly profitable, we believe there are emerging opportunities to use our capital to accelerate our growth even faster. We are prioritizing new business development initiatives based on consumer insights we glean from our direct-to-consumer and licensing businesses with a focus on expanding customer lifetime value. These are initiatives that should generate significant revenue over 3 to 5-year time horizons. The return will not be overnight, but we will be remiss not to make the investments today to drive such significant future growth. The driving force of this new business development strategy is the power of our flagship brand.

I'd like to hand the call over for a few minutes to our Chief Brand Officer and President of Corporate Strategy; Rachel Webber, to share a bit more detail.

Thank you, Ben. It's such an exciting time at PLBY Group. Over this past year, we've continued to see powerful Playboy brand affection promoted by influencers and the creative community, and this has translated to strong sales, particularly with Gen Z and millennial consumers. We're particularly proud of our break-the-internet moments, including our first digital cover drop with Bad Bunny, which sparked crucial conversations on masculinity today, our recent International Women's Day partnership with Lana Rhoades, Ellen von Unwerth and Lynsey Addario and the work we did with our Playmates community throughout the year to raise awareness for gender and racial equality and body positivity.

It's also thrilling to see all of the organic influencer promotion for the Playboy brand, from Megan Stallion showing off her Playboy nails to her over 20 million followers, to LaLa Anthony paying homage to the classic bunny suit, to many of the biggest TikTok stars wearing their Playboy streetwear in their dance videos.

The key thing that we're working on today is turning our Playboy franchises and themes into huge product lines and contemporary marketing platforms unto themselves. Based on the considerable success we've seen with our tests of Playboy lingerie capsule collections on Yandy, we're now investing in building out a much more ambitious strategy for a lingerie line that will likely leverage our Playmates franchise.

We are working in partnership with a beauty incubator to accelerate bringing a new cosmetics line to market as well. And as Ben mentioned, we are beginning to take in-house our streetwear business, including the Playboy Labs franchise, to invest in building an owned platform for influencer-driven product collaboration. We're particularly excited by the opportunity to leverage our Mansion and Big Bunny franchises to activate influencer communities and roll out related product lines.

Lastly, we are sitting on almost 70 years of the most incredible and iconic art and photography. We are actively working on our nonfungible tokens, or NFT, and digital collectible strategy to enter the space in a thoughtful way, designed for long-term growth and community adoption. We are thrilled by the runway ahead and the wealth of opportunities afforded us by our priceless intellectual property.

And before I hand the call back over to Ben, I want to make sure to touch on our important social impact work, which builds on Playboy's long history of advocating for personal freedoms and equality. 2020 was the 50th anniversary of the Playboy Foundation groundbreaking commitments on cannabis-related social justice and cannabis law reform. We are very proud this past year to announce the reinvigoration of this work, including a grant and mentorship program to support black and brown cannabis entrepreneurs and partnerships with grassroots organization progressing crucial social justice efforts.

Our ongoing social impact programs are core to our Playboy DNA and in many ways, more relevant to our audiences and customers today than ever before.

With that, I'll hand the call back over to Ben.

Thank you, Rachel. We are seeing more growth opportunities today than any time since I took over as CEO. I believe it speaks to the brand investments we have made that are clearly resonating with consumers globally. The opportunities we see include initiatives previously identified in our 5-year projections as well as new opportunities that, should they be successful, allow us to accelerate and/or exceed the 5-year numbers we've provided historically. These opportunities require small upfront investments, but we believe they are warranted and could result in significant return on investment.

To recap these growth initiatives: first, continue to accelerate our direct sales growth in the U.S. through increased merchandising, cross-selling and influencer marketing programs; second, continue to develop our streetwear business in-house to capture 100% of the retail spend as well as partner with influencers to launch capsule collections with us as the licensor; third, expand our sexual wellness offerings with our private-label products to increase margins as well as develop a permanent Playboy lingerie collection; fourth, continue our growth path into India and women's apparel and lifestyle in China; fifth, relicense rights we have taken back, including opportunities in the gaming space; sixth, continue to grow our intellectual property portfolio by creating or relaunching new sub-brands that we could exploit not only domestically, but which we will also be able to license internationally; seventh, invest in beauty, color cosmetics and men's grooming; eighth, launch our spirits in Asia, hand-in-hand with our spirits joint venture partner; ninth, expand our CBD-based product offerings internationally as well as launch THC-based products domestically, should they become legal at the federal level; and ten, leverage our phenomenal archive in the NFT and other ancillary spaces.

Lastly, on the acquisition front, we are pleased to announce just a few weeks ago that we completed the acquisition of Lovers, a leading omnichannel sexual wellness retailer. The Lovers' transaction is both financially compelling and perfectly align with our sexual wellness expansion plans. With an integrated Lovers platform, we achieve immediate expanded reach for the cross-sell of some of Yandy's fastest-growing product lines, which we tested this past year as well as our newly launched Playboy sexual wellness intimacy offerings, such as our CBD-based products, condoms and wipes. Lovers also brings us high-quality merchandising, private-label product development capabilities and highly experienced -- experiential retail leadership. In the sexual wellness category, in particular, product discovery and in-person retail education drives significant propensity to buy and consumer brand affinity.

Armed with a strong balance sheet and the publicly-traded equity, we are actively searching for the most financially compelling acquisition opportunities that will enable us to accelerate our organic growth goals and product category leadership. Most importantly, I am surrounded by a world-class management team that combines the operational and corporate development experience necessary to execute on all of the immense opportunities in front of us.

I am now excited to introduce you to the newest member of that senior management team, Lance Barton, our Chief Financial Officer.

Thanks so much, Ben. Let me start by saying how thrilled I am to be here as PLBY Group's newly appointed CFO. I joined this team because I believe the huge organic reach of our flagship brand and 68 years of valuable and one-of-a-kind IP provides us with a multitude of revenue opportunities that we are in the very early stages of capturing. I'm excited to partner with Ben and the fantastic executive team that he has assembled as we embark upon this journey.

Now let's dive into the numbers. We had an incredibly strong fourth quarter and full year 2020, driven by growth in both direct-to-consumer and licensing revenue. Total revenue in the fourth quarter increased 118% year-over-year to $46 million, while full year revenue increased 89% to $148 million. Direct-to-consumer revenue grew from almost nothing in 2019 to $64 million last year, driven by significant growth in both sexual wellness, and style and apparel.

Licensing revenue grew 20% to $61 million last year, driven by our global and diversified portfolio of licensees.

Net loss narrowed to $5 million in 2020, a year-over-year improvement of $18 million, and in the fourth quarter, net loss of $0.5 million with a year-over-year improvement of $5 million.

Adjusted EBITDA for the quarter was $7 million and for the full year was $28 million. Fourth quarter EBITDA would have been higher, but we booked $2.2 million of out-of-period expenses to clean up historical sales tax and [achievement] liabilities, along with retention bonuses that should have been accrued for earlier in the year.

Turning now to the balance sheet. As many of you are aware, our ending cash position in 2020 of $15 million does not reflect the closing of our business combination with Mountain Crest Acquisition Corp. which occurred on February 10 of this year and capitalized PLBY Group with over $100 million of unrestricted cash, net of transaction expenses. Subsequently, our cash balance was reduced by $25 million on March 1, when we acquired Lovers.

I also want to mention that we intend to kick off a process to refinance our existing debt shortly after earnings. We will work with our adviser to evaluate alternatives and will ultimately decide what to do based on available terms and market conditions.

In terms of financial outlook, providing one in the current macro environment is difficult for many companies, and we are no exception. We continue to experience supply chain disruptions due to COVID that impacts our revenue as key ports still face challenges receiving products, causing us to remain out of stock on many items.

Despite these uncertainties, we had a great start to the year, so I want to provide some color on our outlook for the full year based on what we know today. We believe that we will exceed $200 million of revenue in 2021. This number raises our prior outlook for Playboy and includes revenue to be contributed from Lovers starting in March, but does not include revenue from any emerging growth opportunities that we may choose to invest in. Similar to last year, we expect much of this growth to come from increased direct-to-consumer revenue in both sexual wellness, and style and apparel. It's also important to note that as we continue to grow our direct sales, there will be increased seasonality in the business with revenue building throughout the year and the fourth quarter typically the strongest due to Halloween and the holiday shopping season.

As Ben and Rachel described, we currently see more opportunities to invest in the business than ever before. We expect to take advantage of these opportunities by making near-term investments, which we believe will accelerate our path to exceeding our long-term target of $300 million of revenue and $100 million of adjusted EBITDA. These discretionary investments, along with the increased cost of being a newly public company may slightly impact the 2021 EBITDA outlook that was previously communicated, but that impact will ultimately depend on the cadence and number of opportunities that we decide to pursue this year. We will evaluate each investment on the basis of its potential to accelerate long-term revenue and profit growth and look forward to updating you on the progress of our growth strategy as we move through the year.

With that, I'll ask the operator to please open the line for questions.

(Operator Instructions) Our first question comes from the line of George Kelly of ROTH Capital Partners.

Congrats. Really nice quarter. So nice work. So I do have a few questions for you. First, I wanted to talk about your U.S. business. And you gave a statistic, I think it was over $100 million of retail sales coming from 2 of your key partners in the U.S. So I guess, the question I wanted to ask you, that surprised me. That was a big number. So my question is, as you're launching more on your owned e-commerce channels, I'm speaking of Playboy and Pleasure For All and others, how quickly will those businesses ramp? I'm just looking at that $100 million and thinking, wow, the products look somewhat similar. So I don't know if you can help at all just with what you've seen so far or give us any kind of -- temper my expectations. I don't know however you want to answer that.

George, it's Ben Kohn. Thanks for the question. So the products aren't dissimilar to things we have planned, including taking back Playboy Labs, which we historically have been outsourced, which is really taking us and turning us into the licensor versus licensee, had really successful drops last year with Steve Aoki, et cetera. The opportunity in front of us, it really speaks to the consumer demand for the brand. So you're right, the number with Pac Sun and Missguided for retail sales exceeded $100 million. That's up over 15x since 2018.

The challenge with the business model, and this is really where we're in the bottom half of the first, top half of the second, evolving it, is in that deal, we only see $0.05 to $0.06 on the dollar, right? So if you think about the consumer spend versus what we're booking as revenue, the opportunity is absolutely huge, to grow our revenue moving forward, where we can book 100 cents on the dollar, and we believe based on the product category, that should translate to a very nice net margin somewhere in the 25% range. And so we're excited.

As far as the ramp on that, we just brought in Kevin Diamond, who we're very excited to be part of the team. He's continuing to build out the team underneath him. And I think it will be an evolution. So it's not like we're getting rid of the other revenue overnight. We have partnerships with these brands that we think are great partners of ours. But we believe long term, not only domestically but internationally as well, given that $3 billion of spend, we look to capture a much larger percentage of that over time. That will not only increase to a magnitude in our revenue growth, but also our EBITDA growth long term.

Okay. Excellent. And then maybe just to sort of follow-up on that conversation. How quickly do you expect to launch? And I think you gave a bit of a time line. But -- so the first real push is in sexual wellness and apparel. And should we start to see cosmetics later this year? What do you think the timing is on that?

Yes. So obviously, our ramp that we're projecting internally today on apparel, just finishing the last -- is slow. And there's good chances if things work, we will exceed those targets, and we'll talk more about that as the year proceeds.

As far as cosmetics, we have signed a partnership with a beauty incubator. We see a massive opportunity to cross-sell products with our Yandy and Lovers' customers, and we can talk more about that. Most likely that product, the first color cosmetics we'll launch in the beginning of 2022. There's a long lead time with this. But we think it's an investment that's warranted. It's also an investment and a revenue stream that was not forecast in the $300 million. If you remember our model, we were projecting about $16 million of growth over 5 years in the beauty and grooming space. Obviously, we would not be making this investment in color cosmetics and ancillary products to generate $16 million of revenue. And so we hope in the future, we'll be able to talk more about how big that opportunity can be on a global basis, including in other international markets.

Okay. Excellent. And then a separate topic on your international license business. Can you help me understand just the kind of normalized -- if I just look over the next 2 to 3 years, in China, you're introducing -- or you recently introduced women's apparel? And you talked about e-commerce and growth in India. Well, if you just sort of gave it a normalized growth rate, should this be kind of high single-digit revenue growth for the foreseeable future? Am I crazy saying that?

Well, I think what we've talked about is in 2020, our licensing business grew 20%. Again, it's not a linear growth. It will be a step function as we continue to accelerate our growth in international markets. But I would say long term, I'm a firm believer from a macro perspective in the India market, our first product will be launching there in October with Jay Jay Iconic Brands right before festival season. There's big opportunities in gaming, in the spirit sector, craft beer, specifically, men's grooming and sexual wellness. In fact, in the sexual wellness category, we just terminated or parted ways with a small partner there that was really in the lingerie and innerwear space to take that back in-house. But I think India will be a combination of owned and operated and licensing, but we see big opportunities in Brazil, in Russia and then in other places, including China, where one of the biggest categories is men's grooming, and we're not in that today.

And I also just add to that, I think we've mentioned this before, that we've got $400 million of these revenues that are contracted with us through 2029. And I think those numbers that we report don't even consider renewal rates on those contracts. I think historically, we've had a 95% renewal rate on that. So the nice thing is, you've got that stable cash flow coming from that. And then to the extent that we decide to -- obviously, we've demonstrated over the last few years an ability to really grow that licensing stream, we can do that by expanding into more of these partnerships or as Ben talked about, this opportunity to bring some of these things in-house, which could generate obviously a multiple of revenue and EBITDA for us.

Okay. Excellent. And then last question for me. NFT. So I'm no expert here. But can you tell me just a bit more about -- maybe this is sort of longer-term plan and you're not wanting to say too much now, and that's fine. But what is -- I know you have a big media library, of course, all the magazines and covers and all that. Are there other things that would be suitable for NFT? Just how are you -- what is it that you own that you think makes the most sense to potentially do some more under NFT?

Sure. So George, I'll take this, and I want to turn it over to Rachel Webber to talk more about it. We've been looking at the NFT space for multiple months now. We've had multiple proposals for licensing, which we have passed on. We believe the opportunity is huge long term. It is something that we are going to be launching here in the near term, and Rachel will talk about that. And we'll be making more announcements on it. It is not forecasted today in any of our projections moving forward for the balance of this year from a revenue perspective, given that the NFT space is emerging and our presence in that NFT space will be emerging. But let me turn it over to Rachel to talk more about our excitement around it.

Great. Thanks, George, for the question. As you described, we're very excited by the NFT art space, in particular, sitting on this incredible art collection and our iconic archive of photography and some of the world's most famous artist, Highbrow, Lowbrow cartoon, we have an incredible wealth of material. We also have a long history of partnering with artists to create new material, and that's definitely going to be part of our plan.

Across the board, though, to your point, we really see this as a long-term strategy for how we leverage blockchain technology across all of our categories. So in addition to art, there's working with our talent relationships to create NFT kind of ownable experiences with our talent. There's the opportunity for us to apply our streetwear to blockchain technology. Streetwear is something that consumers inherently want to feel a collection of, want to feel ownership over. So that's a part of our comprehensive plan.

And lastly, the Playboy brand, in particular, has in it this inherent sense of once-in-a-lifetime experiences and those best experiences that you can have, and there's a way for you to pair that and turn those experiences into collections of experiences or things that you can own. That we can leverage blockchain and the kind of -- and the gamified elements as well on top of the blockchain. So as Ben described, we'll have some of our first announcements coming in the very near future, and we're really planning this comprehensive plan for the long term.

Yes. So George, I think, look, we have an unbelievable archive, 68 years. It is the 5,000 pieces of art we have. It's covers, it's photography, it is so deep and rich in what's in there. But it's also the relationships that we've had for 68 years with artists. LeRoy Neiman was on staff at Playboy. It was us commissioning the Warhol -- with Andy Warhol. And so I think it's going to be a combination of leveraging the archives and the art collection, commissioning and working with emerging artists today for new works, a combination thereof. And then those great talent relationships we have with influencers and with a whole host of creative community where we can also create NFTs and other digital collectibles with them.

Our next question comes from Alex Fuhrman of Craig-Hallum Capital.

Great. Nice to speak with you all. It sounds like there's a ton of investment opportunities in front of you that you're looking at. I'd love to ask about a couple of them. In particular, emerging markets seems like a big opportunity just given how big the Playboy brand is in China. Can you talk a little bit more about your time line and strategy to go after additional markets? It sounds like, Ben, you mentioned that we're going to see the first Playboy product in India in October. Could that potentially be a significant business in 2022? Can you talk about what the ramp is going to look like there, as well as maybe any other countries you're thinking about?

Yes. Thanks, Alex. Look, this -- one of the reasons I took this job is how huge Playboy is and how valuable it is. And I've spoken to this, but I believe like the Nike Swoosh, we are sitting on one of the most valuable pieces of IP that exists in the world. And not only do we sell product domestically where we're seeing a 15x increase in our domestic product, but internationally, we sell product in 180 countries. In China, we are one of the largest men's fashion brands. We have 2,500 brick-and-mortar stores, 1,000 e-comm stores. That's historically been men's apparel. We just launched women's apparel.

We think there's a big opportunity in men's grooming in other categories. India, I believe, long term, could be as large as China is today for us. It is the youngest consumer base in the world. It will be the largest consumer base in the world. It's English speaking. That's going to be a hybrid model, as I mentioned before, of owned and operated and licensing. But South America, again, brand has basically 100% awareness. It's loved in South America. Brazil is a really interesting opportunity for us, not only with CBD products, but with our beauty products, it's a massive beauty and grooming market down there.

Russia is really interesting. We're seeing expansion of the business in Europe as well. And so again, what's so unique about this brand, and I view it as really priceless is that awareness that we have on a global basis. And it opens so many doors and provide so many opportunities to not only for future growth, not only capitalizing on the spend that's there, but expanding that spend exponentially in the future. And so look, we'll see what happens in India. I'm very optimistic on it as is the team. We have a team now dedicated and focusing on expanding our market there. And the same with China, where I think we can continue to launch other products and services.

And then there's the other opportunity in China, which is, we made a big investment in 2019 in software, really tracking our online sales. And I think in no means do I want to tell you that we'll collect every single dollar in China. But I will tell you, right now, there is a significant opportunity to start collecting overages in the future in China. We've been slowed down because of COVID in the nature of doing business there and being there in person. But we know what is being spent now on the online platforms. And we know there's an opportunity to enhance our margins and our revenue by collecting existing spend that is being underreported to us.

Great. That's really helpful. And then I also wanted to ask about Lovers. You've owned this business for a couple of weeks now. Have there been any surprises since you've owned the business? Curious what your thoughts are, having had a more in-depth look under the hood? And then I know it's obviously early days right now, but as you look out, having this network of brick-and-mortar stores, what's the opportunity for Playboy-branded products, products from Yandy? Do you envision a pretty substantial overhaul of the current Lovers store? Or is it going to be more tweaking around the edges? Would love to just hear more about the strategy there.

Yes. I think let's start with our M&A strategy because we have a really robust pipeline of M&A. Both Lance and I and other members of the team have a rich history in M&A and a ton of experience over the years. Lance ran M&A for both IAC and then for Match, and I spent 20-plus years in private equity before I took the job full-time here. One, deals have to be financially compelling. I always put my private equity hat on when we're looking at these.

But one of the reasons that I left private equity to do this full-time was the opportunity to really realize synergies between companies. And so not only do deals for us have to be financially compelling, we also have to see real synergies. And those synergies can come in 2 forms. One on the cost side, but more importantly, for us, as we look to really expand our revenue is by buying the company, are we accelerating our organic path because there's a skill set that's coming in, that helps us accelerate it. And I believe that exists at Lovers today.

So a couple of stats. We tested bedroom accessories at Yandy last year, saw unbelievable traction with very few SKUs. We are now actively going to market to our Yandy customer base, a full assortment of Lovers products. But on the flip side of that, also, Lovers, about 20% of their revenue comes from lingerie. Again, same issue that we had at Yandy, which is very few SKUs that come off of that. And so now we have the ability to take that full Lover -- Yandy merchandising and market that to the Lovers audience. And then we're going to be cross-selling this like we've started to do in the fourth quarter across all of our e-comm stores.

So if you saw in the fourth quarter with Playboy, we sold Halloween costumes for the first time. We started selling lingerie. Yandy also gave us great testing on our Playboy-branded lingerie. So we did 2 capsule collections with them. We have another one coming up. It's sold out pretty much immediately the first one. The second one, we ended up -- I can't remember how many reorders for merchandise we had. And that is now giving us the data to actually launch our own lingerie business that Rachel touched on, and either under the Playboy or the Playmates franchise moving forward, which we think has massive global potential long term. A huge market for lingerie, unbelievable margins.

As far as the retail side, we have our products in a number of Lovers stores, and we are working on embedding them in all of the Lovers stores, including our CBD, condoms, wipes, et cetera. Lovers also has a great private-label division. And so we can immediately launch other products that we're targeting for later this year. And then from the store front, 70% of sexual wellness store sales still come from online -- sorry, from retail environments. And so we're able to see a higher sell-through of our products there because we're able to educate the consumer on those products.

I do see a world in which we can continue to evolve their store fronts. Sexual wellness has become completely mainstream over the last 3 years. So it's Gwyneth Paltrow going on the Ellen show and talking about her favorite vibrator. It's -- Goop just launched the vibrator actually. And so I think there's a way to continue to merge those stores to drive additional growth. Barbara Cook who joins us as the CEO of Lovers has a really rich history in retail. We also think there's an opportunity, although we're not forecasting it at this point, for a Playboy-branded experiential retail, whether that be on a permanent basis or a pop-up basis, but we think there's a great opportunity to continue to drive brand awareness for us and really what the future of Playboy is through both.

Our next question comes from Austin Moldow of Canaccord.

Can you talk through the underlying drivers of that 20% licensing growth?

Yes. So Austin, it's Ben Kohn. How are you? The underlying growth was really across the board. So we signed a new kids deal in China that we only got a very small benefit of last year. Our apparel business in the United States. So if you look at it with Pac Sun, Missguided, again, that was a business on a combined basis in '18 did roughly $6 million, growing to $29 million in '19 and over $100 million last year. And obviously, a percentage of that revenue.

But the way to think about our licensing business is, again, it's a lot of onesies and twosies as is this business. And so it's a really well-diversified global revenue stream. And so there's contributions all over the place. We have new gaming partnerships. We have new gaming partnerships that we signed that we don't book revenue for, but we will starting this year as our poker rooms and Interblock deals come online. And then on top of the growth we saw, we've also freed up a ton of new white space that we plan on licensing for areas that we don't want to operate ourselves in.

Great. Can you walk us through the puts and takes for near-term direct-to-consumer operating margins? And maybe what you think long-term that DTC operating margin could be?

Yes. Look, I think in the near term, we're still in the ramp-up phase. What's so unique about this brand is the 50 million people we interact with every single day. And so unlike other brands, and I'm talking about Playboy specific now, that spend a ton of money on customer acquisition costs, we historically have not done that because we have an embedded audience today. I'm really excited about what Kevin is going to do. Long term, I believe, as we said, for company-wide basis, and this is how we think about it, we should be in the 30% margin. Depending on product category, on the D2C basis, I would assume we're going to be sort of in that 25%. We also have really unique assets here. We've talked about the art collection. And we have a whole host of other things that we think could be very high-ticket items on e-comm that we can merchandise around that would allow us to actually expand those margins.

Got it. And lastly, could you sort of refresh us on your relationship with Walmart and CVS as it pertains to your sexual wellness products?

Yes. Again, I think the business rationale for entering those 2 was really about more awareness in the sexual wellness space. They're not money -- they're not big moneymakers for us because the margins are slim by the time you get done paying big-box retailer fees. And so from a strategy perspective, it's a nice to have. Again, it's a small contributor. What we're really focused on is our owned and operated in D2C efforts where we can drive superior lifetime value with the customer, which is something with our new data science practice, we're really focused on.

And I think, again, in this cluttered and fickle consumer environment that we live in, we have such a mass unique advantage in that this brand stands out amongst all others. And that's why I think I opened with this -- the Rabbit Head is so recognizable and stands out, that it gives us a really unique competitive advantage versus others that are spending a ton of money trying to build brand awareness. We don't have to do that. Now we have to invest in the brand, which we do every day. And I think you've started to see the fruits of that this year with our streetwear business growing at basically 4x year-over-year, really around Gen Z. So we'll continue to invest in the brand. But the awareness is there. And I think in this fickle consumer environment, this is a brand that truly stands out.

Our next question comes from Greg Pendy of Sidoti.

Just one on Lovers. It looks like you're acquiring 40-plus stores versus Yandy, I don't believe there was any store footprint tied to that acquisition. So just kind of wondering what type of lease exposure are you taking on in light of some of the trends that are going on in retail right now. And what is your appetite, I guess, for further stores as you think about acquisitions going forward?

Well, first, we'll start on appetite for expanding stores. I think the start-up cost of expanding these stores is relatively minimal. You're talking $100,000, a couple of hundred thousand, something like that. We view it as -- because they're an omnichannel retailer and the in-store experience can sometimes drive sales online as well. So one of the things we really liked about Lovers was the fact that they provided a really good in-store experience. We're not focused, I don't think, on immediately expanding our footprint there. But it's something that, I think, certainly could be done with pretty minimal capital outlays.

On the lease exposure side, I don't think it's anything material worth calling out. I'd have to go back through our financials to see. But I think most of the leases will expire within the next 4 years. Again, I think the start-up costs on all of these are pretty minimal, and we've got opportunity, obviously, to renegotiate for lower rates whenever these leases are up for renewal.

I don't know, Ben, anything else to add?

Yes. The only thing I would add is, what's great about Lovers and their stores is, as Lance said, the start-up costs on these are $100,000, give or take. Their payback is very quick. And so we are able to acquire customers through these stores in a very profitable way and then transfer those customers to online as well. And so I think it's very unique versus when you look at the universe, others are trying to acquire customers online, you potentially lose money on those customers in the beginning. We have the ability to acquire customers multiple different ways, right? So online as well as brick-and-mortar and then transfer that brick-and-mortar customer to an online customer. And so that's what we're focused on long term, again, is D2C. We think retail does have a place. It's not going to be the primary driver, but we can leverage retail and the customer acquisition to cross-sell that customer with multiple different products by capturing their information at the POS or the point of sale.

And also, Greg, just half -- I think I said the leases expire over the next 4 years, I think half of them are actually expiring in 2 years or less.

Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect.