Perry Ellis International, Inc. (NASDAQ:PERY) today reported
results for the third quarter and nine months ended October 31,
2009.
Third Quarter Results from Operations
“We are pleased to report results slightly ahead of plan for the
third quarter of fiscal 2010. This is a validation to the strength
of our brands, the benefit of our diversified business model, the
power of our niche strategy and the decisiveness of our actions,”
commented Oscar Feldenkreis, President and COO of Perry Ellis
International. “As the global economy begins to emerge from this
deep recession, the Company is well on its way to reverting to a
growth pattern. We see the current holiday season as the beginning
of the recovery.”
For the three months ended October 31, 2009 (“third quarter of
fiscal 2010”), earnings per fully diluted share at $0.31
represented a decrease of $0.02 compared to $0.33 for the third
quarter ended October 31, 2008 (“third quarter of fiscal 2009”).
This compares positively to Thomson’s First Call consensus of
earnings at $0.21 per fully diluted share for the Company during
the third quarter of fiscal 2010. Earnings per fully diluted share
were positively affected by a reduced number of shares outstanding
and a tax benefit attributable to the reduction in unrecognized tax
benefits related to the Company’s foreign operations. At $4.1
million, earnings for the third quarter of fiscal 2010 declined
$0.9 million compared to $5.0 million for the same period last
year.
The cost reduction initiatives launched at the end of fiscal
year 2009 and strict expense controls during the third quarter of
fiscal 2010 resulted in operating expense reductions of $11.5
million. Operating expenses at $52.0 million represented an 18%
reduction compared to $63.5 million for the third quarter of fiscal
2009. These reductions contributed to earnings before interest,
tax, depreciation and amortization (“EBITDA”) for the quarter of
$12.3 million. A table showing the reconciliation of EBITDA to net
income is attached.
As a result of strict inventory controls and reduced operational
chargebacks, the Company’s gross margins for the third quarter of
fiscal 2010 expanded to 34.2%, an improvement of 10 basis points
compared to 34.1% for the same period the prior year.
“We are pleased with our gross margin improvements for this
quarter. Despite margin pressures we have experienced throughout
this fiscal year, our investment in information systems and our
proactive management of the supply chain has more than offset
them,” Mr. Feldenkreis continued.
Total revenues for the third quarter of fiscal 2010 were on plan
at $178.5 million. These results represented a $44.3 million
revenue decline compared to $222.8 million reported in the third
quarter of fiscal 2009.
Compared to third quarter last year, the Company increased
revenues in certain businesses including:
(i) Continued strong performance at Kohl’s with above plan
sell-thru for GrandSlam and increased penetration of Hispanic brand
Centro;
(ii) Increased door penetration at mid-tier for the re-launched
John Henry brand;
(iii) Improved comps for same store sales at Perry Ellis and
Original Penguin direct-to-consumer divisions;
(iv) Initial shipments for Callaway Fall ’09 product at
department stores; and
(v) Above plan performance for Laundry by Shelli Segal and
leather accessories under the Perry Ellis brand at the department
store channel.
Mr. Feldenkreis commented, “Our Perry Ellis Collection, mid-tier
brands, golf and Hispanic businesses all reported a strong third
quarter and are positioned for growth in the holiday and spring
seasons. We are excited about our fourth quarter prospects.”
These results were offset by the overall weakness in the
department store and luxury distribution channel, particularly for
the swim category, plus the planned and previously announced
reductions in the following businesses:
(i) Door count reduction for Perry Ellis Collection by exiting
of unprofitable doors at the department store distribution channel,
accounting for $14.2 million for the quarter;
(ii) Planned exit of mass merchant private label business
accounting for approximately $11.8 million;
(iii) Anticipated exiting of PING golf business at the corporate
channel of $4 million;
(iv) Departure of multiple retailers which filed for Chapter 11
during fiscal 2009, accounting for revenues of approximately $1.7
million;
(v) Exit of the Dockers outerwear license and men’s specialty
store business of approximately $6.5 million for the same period
last year.
“Based on current trends, we are confident that the third
quarter marks the final quarter of revenue declines for our
Company. Initial readings point to a solid holiday season and a
strong first quarter for fiscal 2011. As the economy rebounds, we
believe that the decisive actions taken during these challenging
times have positioned Perry Ellis International as a stronger, more
efficient and better managed company for fiscal 2011 and beyond,”
Mr. Feldenkreis concluded.
Balance Sheet and Liquidity Review
For the third consecutive quarter, the Company improved its
balance sheet and remains in an outstanding financial position. The
continued discipline in working capital management allowed the
Company to keep its senior credit facility unutilized, providing
$125 million in availability at the end of the third quarter.
Additionally, the Company reported $25.5 million in cash and cash
equivalents.
Proactive retail planning and inventory discipline allowed the
Company to reduce its inventories by $28.5 million, or 22.5%,
compared to October 31, 2008, ending the quarter with total
inventory of $97.9 million. Inventory turns increased to 4.52
times, compared to 4.28 times last year. Accounts receivable were
reduced to $123.6 million, compared to $149.2 million as of October
31, 2008. This represents a $25.6 million or 17.1% reduction, in
line with the net sales reduction for the quarter.
“We remain committed to conservatively managing our working
capital, while generating strong operational cashflow,” George
Feldenkreis, Chairman and CEO, commented. “Our decisive financial
management has positioned Perry Ellis International in its best
shape in recent years.”
Nine Months Operations Review
For the nine months ended on October 31, 2009 (“first nine
months of fiscal 2010”), total revenues decreased by 15.5% to
$557.8 million from $660.1 million during the same period last
year. This decrease includes lost revenues of approximately $82.5
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 licensing out of
the Perry Ellis dress shirts business and the exit of multiple
private label programs, primarily at Wal-Mart. Due to the highly
promotional environment pervasive in the consumer goods industry,
coupled with inventory liquidation of exited businesses during the
first nine months of fiscal 2010, the Company also reported a
decrease in gross profit margins of 157 basis points compared to
the first nine months ended on October 31, 2008 (“first nine months
of fiscal 2009”).
Revenue and gross profit declines have been partially offset by
the cost reduction process initiated during fiscal 2009 and
continued throughout fiscal 2010. Compared to the first nine months
of fiscal 2009, the Company reduced its operating expenses by $32.3
million, or 17%, to $161.1 million. Net income for the period
declined from $8.7 million to $4.7 million, a $4.0 million
reduction compared to the first nine months of fiscal 2009.
Fiscal 2010 Guidance
Better than expected results during the third quarter of fiscal
2010 have allowed the Company to increase its earnings guidance to
the range of $0.80 to $0.95 per fully diluted share, from the
previously announced $0.70 to $0.85 range, for fiscal year
2010.
“Despite the uncertainty in the consumer environment, we
continue to perform at our growth platforms and deliver on our cost
cutting initiatives,” Mr. Feldenkreis continued. “Although we keep
trending ahead of our internal plans, we remain conservative in
this uncertain environment and our current guidance reflects
this.”
The Company also confirmed its guidance for fiscal 2010 of total
revenues decreasing in the low double digit range, but revenue
growth and gross margin improvements for the remainder of the
current year. Finally, the Company announced that it will provide
fiscal 2011 guidance after the end of the current holiday
season.
“We are cautiously optimistic about fiscal 2011. Next year
should see Perry Ellis International returning to a solid growth
path, with gross margins expanding and operational leverage
resulting from expense control initiatives executed throughout this
year as well as new business initiatives. As we move along during
this critical holiday season, we will provide our guidance for next
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 Nine
Months Ended October 31, 2009 October 31, 2008
October 31, 2009 October 31, 2008 Revenues Net
sales $ 172,154 $ 216,232 $ 539,172 $ 641,398 Royalty income
6,397 6,583 18,592 18,665 Total
revenues 178,551 222,815 557,764 660,063 Cost of sales
117,564 146,915 378,335 437,359 Gross
profit 60,987 75,900 179,429 222,704 Operating expenses Selling,
general and administrative expenses 48,704 59,933 150,778 182,529
Depreciation and amortization 3,292 3,551
10,305 10,898 Total operating expenses 51,996
63,484 161,083 193,427 Operating income
8,991 12,416 18,346 29,277 Impairment on marketable securities -
580 - 2,563 Interest expense 4,711 4,355
13,295 13,134 Income before income taxes 4,280
7,481 5,051 13,580 Income tax (benefit) provision (26 )
2,244 107 4,288 Net income 4,306 5,237 4,944
9,292 Less: net income attributed to noncontrolling interest
168 238 265 565 Net income attributed
to Perry Ellis International, Inc. $ 4,138 $ 4,999 $ 4,679 $
8,727 Net income attributed to Perry Ellis International,
Inc. per share Basic $ 0.33 $ 0.34 $ 0.37 $ 0.59 Diluted $
0.31 $ 0.33 $ 0.36 $ 0.57 Weighted average number of
shares outstanding Basic 12,695 14,752 12,688 14,673 Diluted 13,230
15,170 12,889 15,272
PERRY ELLIS INTERNATIONAL,
INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA
(UNAUDITED) (amounts in 000's) BALANCE SHEET
DATA: As of October 31, 2009 January 31, 2009
Assets Current assets: Cash and cash equivalents $
25,519 $ 8,813 Accounts receivable, net 123,623 142,870 Inventories
97,865 139,074 Other current assets 29,487
31,508 Total current assets 276,494
322,265 Property and equipment, net 63,666 70,222
Intangible assets 200,315 201,229 Other assets 5,567
5,870 Total assets $ 546,042 $ 599,586
Liabilities and stockholders' equity
Current liabilities: Accounts payable $ 37,963 $ 45,826
Accrued expenses and other liabilities 24,345 23,825 Accrued
interest payable 1,866 5,336 Current portion - real estate
mortgages 11,067 494 Unearned revenues 5,771
5,654 Total current liabilities 81,012
81,135
Long term liabilities: Senior
subordinated notes payable 149,787 149,409 Senior credit facility -
54,415 Real estate mortgages 13,780 24,686 Deferred pension
obligation 17,942 17,708 Unearned revenues and other long-term
liabilities 23,319 20,132 Total
long-term liabilities 204,828 266,350
Total liabilities 285,840 347,485
Stockholders' equity Preferred stock -
- Common stock 161 160 Additional paid-in-capital 106,237 103,933
Retained earnings 171,350 166,671 Accumulated other comprehensive
loss (3,703 ) (6,306 ) Treasury stock at cost (17,415 )
(15,664 ) Total Perry Ellis International, Inc.
stockholders' equity 256,630 248,794 Noncontrolling interest
3,572 3,307 Total stockholders' equity 260,202
252,101 Total liabilities and
stockholders' equity $ 546,042 $ 599,586
PERRY ELLIS INTERNATIONAL, INC. AND
SUBSIDIARIES RECONCILIATION OF NET INCOME TO EBITDA(1)
(UNAUDITED) (amounts in 000's) Three Months
Ended Nine Months Ended October 31, 2009
October 31, 2008 October 31, 2009 October 31,
2008 Net income attributed to Perry Ellis
International, Inc. $ 4,138 $ 4,999 $ 4,679 $ 8,727 Plus:
Depreciation and amortization 3,292 3,551 10,305 10,898 Interest
expense 4,711 4,355 13,295 13,134 Net income attributable to
noncontrolling interest 168 238 265 565 Income tax (benefit)
provision (26 ) 2,244 107 4,288 EBITDA
12,283 15,387 28,651 37,612 Impairment on marketable securities -
580 - 2,563 One-time non-recurring restructuring costs -
560 - 2,971 EBITDA as adjusted $ 12,283
$ 16,527 $ 28,651 $ 43,146
(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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