PERY Perry Ellis International Inc. (delisted)

Perry Ellis International Inc. (PERY) recently posted disappointing preliminary operating results for its fourth quarter and fiscal 2012. For the fourth quarter, adjusted earnings per share are expected in the range of 35–38 cents while the company’s revenue is expected to increase 11% year over year to $229 million.

For full-fiscal 2012, revenue is expected to approximate $980 million, up 24% year over year and earnings per share are projected to range between $1.91 and $1.94. This was a downfall from the company’s guided range of $2.00 or above, compared to $2.45–$2.52 guided earlier, due to a challenging third quarter. Before this slash, the company had raised its fiscal 2012 guidance twice.

The late request of retail partners for deliveries of goods, promotional activity and sales allowances in the holiday season hurt the company’s fourth quarter and led to lower-than-expected results. Additionally, the designer, distributor and licensor of a broad line of men's and women's apparel, accessories, and fragrances, anticipates a higher effective tax rate for the year due to an increased mix of domestic versus international income.

This holiday season, the entire retail industry was weighed down by a highly promotional environment to drive traffic. Perry Ellis too had to boost promotions to see increased traffic in its direct-to-consumer business. Hence, challenging economic conditions and a fierce discounting war among competitors ate up the company’s margins. As a result, top line improved at the cost of bottom line.  

Outlook

Perry Ellis, which competes with Polo Ralph Lauren Corp. (RL) and CROCS Inc. (CROX), remains financially stable. It has reduced its total net debt to capitalization to 31% from 41% in fiscal 2012. In a faltering economy, the company is streamlining operations and cutting down less productive overhead in order to maximize profitability. However, all these initiatives will not be implemented before the second half of fiscal 2013. Hence, near-term concerns such as the company’s struggling margins, promotional markdowns as well as an inflationary commodity environment continue to nag. 

Perry Ellis currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are maintaining our long-term Neutral recommendation on the stock.

 
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