Perry Ellis International, Inc. (NASDAQ:PERY) today reported
results for the second quarter ended August 1, 2009 (“second
quarter of fiscal 2010”).
Second Quarter Results from Operations
Oscar Feldenkreis, President and COO commented, “We are proud of
delivering a second quarter slightly ahead of last year’s net
earnings, particularly under very challenging times. Perry Ellis
International’s management has acted decisively to reduce costs and
respond to the challenges created by the current macroeconomic
environment. We are pleased with the progress we have made and we
remain laser focused on improving the performance of our
divisions.”
Net loss for the second quarter of fiscal 2010 at $5.3 million
represents a slight improvement to a loss of $5.4 million during
the quarter ended July 31, 2008 (“second quarter of fiscal 2009”).
Despite this improvement, and driven by a reduced number of shares
outstanding, the Company reported a loss of $0.42 per fully diluted
share compared to a loss of $0.36 for the same period last year.
This compares positively to Thomson’s First Call consensus of a
loss of $0.57 for the Company during the second quarter of fiscal
2010.
Driven by strict cost controls as well as the cost cutting
initiatives announced during the fourth quarter of last year, the
Company’s second quarter operating expenditures decreased by $12.9
million to $51.1 million, compared to $64.0 million for the second
quarter of fiscal 2009. These reductions led to an EBITDA for the
quarter of $1.5 million. A table showing the reconciliation of
EBITDA and EBITDA-as-adjusted to net income is attached.
During the second quarter of fiscal 2010, gross margins at 30.9%
decreased by 120 bps impacted by the planned exit and inventory
liquidation of the licensed PING golf and Dockers outerwear
businesses, compared to 32.1% for the second quarter of fiscal
2009. Margins were also challenging in swimwear products and
bottoms private label programs.
“Close collaboration with our retail partners, better mark-down
management through our sophisticated planning systems and acute
strategic door management provided for a reduction in markdowns and
sales allowances from 9% of gross sales in Q2 last year to
approximately 7% this year,” Mr. Feldenkreis continued.
For the second quarter of fiscal 2010, total revenues decreased
by 17.8%, or $34.5 million, to $159.2 million compared to $193.7
million reported in the second quarter of fiscal 2009. Compared to
second quarter last year, the Company increased revenues in several
of its core businesses including:
(i) Continued strong performance at mid-tier retailers across
the modern, golf and Hispanic lifestyles;
(ii) Combined growth in golf lifestyle brands - Champions Tour,
Pro Player and Links Edition brands; and
(iii) Successful introduction of the Merona swim program and
Hispanic lifestyle brand Café Luna.
“We have seen acceleration in order demand for these categories
for the fall season and the second half of the year. Our branded
swim brands, denim platform, golf brands, Hispanic lifestyle brands
and, overall, our brands distributed to mid-tier stores, are
beginning to return to more normal levels,” Mr. Feldenkreis
commented.
These increases were offset by a reduction in the following
business segments:
(i) Weakness at the department store channel for swimwear
product, affected by unusually cold weather, and for Perry Ellis
brand accounting for $11 million;
(ii) Door count reduction for Perry Ellis Collection by the
exiting of 127 unprofitable doors at the department store
distribution channel, accounting for $3.5 million;
(iii) Planned exit of mass merchant private label business
accounting for approximately $7 million;
(iv) Anticipated deceleration of PING golf business at the
corporate channel of $5 million;
(v) Departure of multiple retailers which filed for Chapter 11
during fiscal 2009, accounting for revenues of approximately $5
million;
(vi) Exit of the Dockers outerwear license and men’s specialty
store business and the planned licensing of Perry Ellis dress shirt
of approximately $3 million.
“We are optimistic about holiday and spring orders for the
fourth quarter. Second half bookings point to strong results and we
believe there will be a return to a normalized replenishment
business,” Mr. Feldenkreis concluded.
First Half Operations Review
For the six months ended on August 1, 2009 (“first half of
fiscal 2010”), total revenues decreased by 13.3% to $379.2 million
from $437.2 million during the six months ended on July 31, 2008
(“first half of fiscal 2009”). These decreases include lost
revenues of approximately $44.3 million due to retailers filing for
bankruptcy protection during fiscal 2009, the exit of the PING and
Dockers licenses and the men’s specialty store distribution
channel, the planned licensing out of the Perry Ellis dress shirts
business and the exit of multiple private label bottoms programs,
primarily at Wal-Mart. Due to the highly promotional environment
pervasive in the consumer goods industry during the first half of
fiscal 2010, the Company also reported a decrease in gross profit
margins of 234 basis points compared to the same period last
year.
Revenue and gross profit declines have been partially offset by
the continued cost reduction process initiated last year. Compared
to the first half of fiscal 2009, the Company reduced its operating
expenses by $20.9 million, or 16%, to $109.1 million. Lower
utilization of the Company’s senior credit facility led to an
interest expense reduction of $195,000 compared to the comparable
period last year.
Balance Sheet Update
The Company also reported its strongest financial condition in
this decade, maintaining a healthy liquidity position. Disciplined
working capital management allowed the Company to completely pay
down its senior credit facility, providing the Company with $125
million in availability at the end of the second quarter.
Additionally, the Company reported $29.5 million in cash and cash
equivalents.
Continuing with its proactive retail planning and inventory
discipline, the Company reduced inventories by $29.7 million, or
22%, compared to July 31, 2008, ending the quarter with total
inventory of $103.4 million. Inventory turns increased to 4.5
times, compared to 4.3 times last year. Accounts receivable were
reduced to $100.1 million, compared to $114.5 million as of July
31, 2008. This represents a $14.5 million or 12.6% reduction, in
line with the net sales reduction for the first half of fiscal
2010.
“By taking proactive and decisive actions and maintaining strict
discipline in our cashflow management, we are positioning Perry
Ellis International for a strong rebound as the economy improves,”
George Feldenkreis, Chairman and CEO, commented. “As consumer
confidence returns and the macroeconomic environment stabilizes, we
will emerge leaner, stronger and focused on taking advantage of all
available opportunities.”
Fiscal 2010 Guidance
Enhanced visibility for season orders for Holiday ’09 and Spring
’10 have allowed the Company to provide earnings guidance in the
$0.70 to $0.85 range for fiscal year 2010.
“In light of better visibility of the second half of the year
and our strong cost controls, we have decided to provide earnings
guidance,” Mr. Feldenkreis commented. “Based on our first half
results we remain committed to reaching an EBITDA of at least last
year’s level.”
The Company also confirmed its guidance of total revenue for
fiscal 2010 to decrease in the low double digits and gross margin
improvements in the second half of the year.
“Although our top line remains challenged for next quarter as
retailers had already committed to conservative Fall’ 09 plans, we
expect to pick up momentum during the month of October and return
to solid growth for the fourth quarter of this year,” Mr.
Feldenkreis continued.
Finally, the Company announced that capital expenditures will be
in the $6 to $7 million range, down $1 million from the previously
announced guidance of $7 to $8 million. This represents a reduction
of between $3.5 and $4.5 million compared to capital expenditures
of $10.5 million during fiscal 2009.
“We reported a first half above analysts’ expectations during
the most challenging economic times since the 1930’s, and we are
starting to see positive signs in the consumer environment.
Although nobody knows with certainty if we have seen the worst of
this recession, we remain confident in the financial strength of
Perry Ellis International and our ability to take all necessary
actions to deliver on our results. We are optimistic about the
second half of this year,” Mr. Feldenkreis concluded.
About Perry Ellis International
Perry Ellis International, Inc. is a leading designer,
distributor and licensor of a broad line of high quality men's and
women's apparel, accessories, and fragrances. The Company's
collection of dress and casual shirts, golf sportswear, sweaters,
dress and casual pants and shorts, jeans wear, active wear and
men's and women's swimwear is available through all major levels of
retail distribution. The Company, through its wholly owned
subsidiaries, owns a portfolio of nationally and internationally
recognized brands including Perry Ellis®, Jantzen®, Laundry by
Shelli Segal®, C&C California®, Cubavera®, Munsingwear®,
Savane®, Original Penguin® by Munsingwear, Grand Slam®, Natural
Issue®, Pro Player®, the Havanera Co.®, Axis®, Tricots St.
Raphael®, Gotcha®, Girl Star®, MCD® John Henry®, Mondo di Marco®,
Redsand®, Manhattan®, Axist® and Farah®. The Company enhances its
roster of brands by licensing trademarks from third parties
including Dockers® for outerwear, Nike® and JAG® for swimwear, and
Callaway®, PING® and PGA TOUR® for golf apparel. Additional
information on the Company is available at http://www.pery.com.
Safe Harbor Statement
We caution readers that the forward-looking statements
(statements which are not historical facts) in this release are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are based on current expectations rather than historical
facts and they are indicated by words or phrases such as
"anticipate," "could," "may," "might," "potential," "predict,"
"should," "estimate," "expect," "project," "believe," "plan,"
"envision," "continue," "intend," "target," "contemplate," or
"will" and similar words or phrases or comparable terminology. We
have based such forward-looking statements on our current
expectations, assumptions, estimates and projections. While we
believe these expectations, assumptions, estimates and projections
are reasonable, such forward-looking statements are only
predictions and involve known and unknown risks and uncertainties,
and other factors that may cause actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements, many of which are beyond our control.
These factors include: general economic conditions, a significant
decrease in business from or loss of any of our major customers or
programs, anticipated and unanticipated trends and conditions in
our industry, including the impact of recent or future retail and
wholesale consolidation, the effectiveness of our planned
advertising, marketing and promotional campaigns, our ability to
contain costs, disruptions in the supply chain, our future capital
needs and our ability to obtain financing, our ability to integrate
acquired businesses, trademarks, tradenames and licenses, our
ability to predict consumer preferences and changes in fashion
trends and consumer acceptance of both new designs and newly
introduced products, the termination or non-renewal of any material
license agreements to which we are a party, changes in the costs of
raw materials, labor and advertising, our ability to carry out
growth strategies including expansion in international and direct
to consumer retail markets, the level of consumer spending for
apparel and other merchandise, our ability to compete, exposure to
foreign currency risk and interest rate risk, possible disruption
in commercial activities due to terrorist activity and armed
conflict, and other factors set forth in Perry Ellis
International's filings with the Securities and Exchange
Commission. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, including those risks
and uncertainties detailed in Perry Ellis' filings with the SEC.
You are cautioned not to place undue reliance on these
forward-looking statements, which are valid only as of the date
they were made. We undertake no obligation to update or revise any
forward-looking statements to reflect new information or the
occurrence of unanticipated events or otherwise.
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES SELECTED
FINANCIAL DATA (UNAUDITED) (amounts in 000's, except per
share information) INCOME STATEMENT DATA:
Three Months Ended Six Months Ended
August 1, 2009 July 31, 2008 August 1, 2009
July 31, 2008 Revenues Net sales $ 152,980 $ 187,404
$ 367,018 $ 425,166 Royalty income 6,189 6,295
12,195 12,082 Total revenues 159,169 193,699
379,213 437,248 Cost of sales 109,961 131,462
260,771 290,444 Gross profit 49,208 62,237
118,442 146,804 Operating expenses Selling, general and
administrative expenses 47,700 60,328 102,074 122,596 Depreciation
and amortization 3,390 3,681
7,013 7,347 Total operating expenses 51,090
64,009 109,087 129,943 Operating (loss)
income (1,882 ) (1,772 ) 9,355 16,861 Impairment on marketable
securities - 1,983 - 1,983 Interest expense 3,966
4,288 8,584 8,779 Income (loss)
before income taxes (5,848 ) (8,043 ) 771 6,099 Income tax
(benefit) provision (694 ) (2,664 ) 133
2,044 Net (loss) income (5,154 ) (5,379 ) 638 4,055 Less:
net income attributed to noncontrolling interest 154 - 97 327
Net (loss) income attributed to Perry
Ellis International, Inc. $ (5,308 ) $ (5,379 ) $ 541 $ 3,728
Net (loss) income attributed to Perry Ellis International,
Inc. per share Basic $ (0.42 ) $ (0.36 ) $ 0.04 $ 0.25 Diluted $
(0.42 ) $ (0.36 ) $ 0.04 $ 0.24 Weighted average number of
shares outstanding Basic 12,669 14,777 12,685 14,632 Diluted 12,669
14,777 12,719 15,323
PERRY ELLIS INTERNATIONAL, INC. AND
SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED)
(amounts in 000's) BALANCE SHEET DATA:
As of August 1, 2009 January 31, 2009
Assets Current assets: Cash and cash equivalents $
29,485 $ 8,813 Accounts receivable, net 100,086 142,870 Inventories
103,409 139,074 Other current assets 28,650
31,508 Total current assets 261,630
322,265 Property and equipment, net 66,069 70,222
Intangible assets 201,229 201,229 Other assets 5,988
5,870 Total assets $ 534,916 $ 599,586
Liabilities and stockholders' equity
Current liabilities: Accounts payable $ 30,573 $ 45,826
Accrued expenses and other liabilities 23,991 23,825 Accrued
interest payable 5,127 5,336 Current portion - real estate
mortgages 11,109 494 Unearned revenues 4,927
5,654 Total current liabilities 75,727
81,135
Long term liabilities: Senior
subordinated notes payable 149,491 149,409 Senior credit facility -
54,415 Real estate mortgages 13,848 24,686 Deferred pension
obligation 18,266 17,708 Unearned revenues and other long-term
liabilities 22,704 20,132 Total
long-term liabilities 204,309 266,350
Total liabilities 280,036 347,485
Stockholders' equity Preferred stock -
- Common stock 160 160 Additional paid-in-capital 105,176 103,933
Retained earnings 167,212 166,671 Accumulated other comprehensive
loss (3,657 ) (6,306 ) Treasury stock at cost (17,415 )
(15,664 ) Total Perry Ellis International, Inc.
stockholders' equity 251,476 248,794 Noncontrolling interest
3,404 3,307 Total stockholders' equity 254,880
252,101 Total liabilities and
stockholders' equity $ 534,916 $ 599,586
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO EBITDA(1) (UNAUDITED)
(amounts in 000's) Three Months Ended
Six Months Ended August 1, 2009 July
31, 2008 August 1, 2009 July 31, 2008
Net (loss) income attributed to Perry Ellis
International, Inc. $ (5,308 ) $ (5,379 ) $ 541 $ 3,728 Plus:
Depreciation and amortization 3,390 3,681 7,013 7,347 Interest
expense 3,966 4,288 8,584 8,779 Net income attributable to
noncontrolling interest 154 - 97 327 Income tax (benefit) provision
(694 ) (2,664 ) 133 2,044 EBITDA 1,508
(74 ) 16,368 22,225 Impairment on marketable securities - 1,983 -
1,983 One-time non-recurring restructuring costs -
2,411 - - EBITDA as adjusted $ 1,508
$ 4,320 $ 16,368 $ 24,208 (1)EBITDA consists
of earnings before interest, taxes, depreciation, amortization and
noncontrolling interest. EBITDA is not a measurement of financial
performance under accounting principles generally accepted in the
United States of America, and does not represent cash flow from
operations. EBITDA is presented solely as a supplemental disclosure
because management believes that it is a common measure of
operating performance in the apparel industry. "EBITDA as
adjusted" consists of EBITDA adjusted for the impact of the
non-cash impairment of marketable securities and the one-time
non-recurring restructuring costs. These are not indicative of our
ongoing operations and thus to get a more comparable result with
the operating performance of the apparel industry, they have been
removed from the calculation.
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