Perry Ellis Disappoints, Cuts Outlook - Analyst Blog
November 18 2011 - 5:00AM
Zacks
Perry Ellis International
Inc. (PERY) posted adjusted earnings per share of 40 cents
in the third quarter of fiscal 2012, missing the Zacks Consensus
Estimate of 61 cents and deteriorating from the year-ago earnings
of 51 cents. The impact of unshipped revenue, promotional activity
and increased investment led to the decline in the bottom line.
Perry Ellis' total revenue
increased 23% year over year in the quarter to $248.4 million.
Sales growth was aided by improved performances at Golf, Hispanic,
accessories, women’s contemporary dress as well as growth in direct
to consumer. Organic revenue grew 5%, excluding the newly acquired
Rafaella business, which infused $38.4 million to the total
revenue. However, unshipped products worth $5.0 million associated
with Rafaella and the company’s European business hurt the revenue
to some extent.
The Rafaella women's sportswear
business has been challenging in the quarter as the products lacked
upgrade. To add to this, warmer weather in the fall season hit the
sales as well. Historically, it has been noticed that cooler
temperatures tend to lead better sell-through rates for bottom
wear.
During the quarter, Perry Ellis'
gross profit increased 15.2% year over year to $82.5 million.
However, gross margin fell 240 basis points (bps) to 33.2% in the
quarter under review. The decline was due to higher levels of
markdowns and customer allowances, which hurt the margin by about
100 bps. Additionally, price rises seemed to have an adverse impact
on sales of basic merchandise and replenishment products resulting
in a drop in the number of units shipped. Approximately $1.7
million worth unshipped gross profit dollars and the weak margined
Rafaella resulted in the lower margin.
At quarter end, Perry Ellis had
cash and cash equivalents of $21.4 million. Long-term debt was
$220.0 million.
Outlook
Perry Ellis reduced its earnings
guidance to at or above $2.00 for fiscal 2012, compared to
$2.45–$2.52 guided earlier. The reduction was followed by the
challenging third quarter. Earlier, the company had raised its
fiscal 2012 guidance twice. EBITDA guidance was also cut to the
range of $75-$80 million from $90 million guided previously. The
expectation for revenue was reiterated at $1 billion.
Our Take
Perry Ellis, the designer,
distributor and licensor of a broad line of men's and women's
apparel, accessories, and fragrances, remains optimistic about the
Rafaella women’s product assortment for the next spring and summer
season. Management remains committed to integrate its thriving
businesses such as Golf and Hispanic as well as the Perry Ellis
Collection with Rafaella’s women’s sportswear. We believe this is a
positive step toward the strength of Perry Ellis’ market share
gain. Additionally, the newly acquired Metropark locations that
were dilutive in the third quarter due to pre-opening expenses,
will likely drive traffic in the holiday season.
Concerns for the near term include
the inflationary commodity environment, struggling margins and high
amount of debt in the company’s balance sheet. The slashed outlook
also makes us cautious.
Perry Ellis currently retains a
Zacks #3 Rank, which translates into a short-term Hold rating. We
are also maintaining our long-term Neutral recommendation on the
stock. Perry Ellis' peers include Polo Ralph Lauren
Corp. (RL) and CROCS Inc. (CROX).
CROCS INC (CROX): Free Stock Analysis Report
PERRY ELLIS INT (PERY): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis Report
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