SUMR Brands ("SUMR Brands" or the "Company") (NASDAQ: SUMR), a
global leader in premium infant and juvenile products, today
announced financial results for the fourth quarter and twelve
months ended December 29, 2018.
Recent Highlights
- Revenue of $40.0 million for the fourth quarter and $173.6
million for the fiscal year, reflecting lost sales due to the
liquidation of Toys “R” Us of $7.2 million and $22.9 million,
respectively, compared to fiscal 2017 and lower revenue due to the
tariff impact in the fourth quarter
- Gross margin of 31.3% in the fourth quarter and 31.8% for the
year, versus 29.8% and 31.7%, respectively, in the prior-year
equivalent periods
- Appointment of Paul Francese as CFO
- New branding strategy and product launches underway for
2019
“We’re pleased to put fiscal 2018 behind us and,
with the Company’s many recent changes, feel optimistic about the
outlook for 2019 and beyond,” said Mark Messner, President and CEO.
“Last year we faced a variety of challenges including, most
notably, the Toys ‘R’ Us liquidation and implementation of tariffs
on goods coming from China. While revenue was down year-over-year
primarily due to such issues, we maintained strong margins,
streamlined our staff, refinanced the Company’s debt, and reduced
costs at our U.S. operations. We also brought on a seasoned CFO in
Paul Francese and made changes at the corporate level to better
reflect our Company, its values, and strategic vision. With three
strong brands – Summer, SwaddleMe, and Born Free – and the planned
introduction of exciting new products, SUMR Brands is poised for
growth. While the potential for a prolonged trade war with China
remains top of mind, we’re better positioned to weather this storm
and expect to see revenue acceleration due to careful brand
management, retail price integrity, and underlying demand for the
innovative products we bring to market. I look forward to the
launch of Born Free in the coming months and our ongoing
transformation during 2019.”
Fourth Quarter Results
Net sales for the three months ended December
29, 2018 were $40.0 million compared with $46.8 million for the
three months ended December 30, 2017. While the Company posted
year-over-year revenue growth across many of its core product
categories, this was more than offset by the impact from the
bankruptcy and liquidation of Toys “R” Us, which negatively
affected sales by $7.2 million compared to the prior-year period.
In addition, the fourth quarter of 2018 was negatively impacted by
a 10% tariff on goods imported into the United States from China
enacted in September of last year. Such tariffs caused market
disruption across certain customers, delaying purchasing
decisions.
Gross profit for the fourth quarter of 2018 was
$12.5 million versus $14.0 million in 2017, while gross margin was
31.3% in 2018 versus 29.8% last year. The 2017 fourth quarter
included $0.2 million in losses on the sale of inventory below cost
related to the Toys “R” Us bankruptcy, and that quarter was also
impacted by price reductions for certain monitor products at the
end of their life cycle.
Selling expense was $3.0 million in the fourth
quarter of both 2018 and 2017, and selling expense as a percent of
net sales was 7.5% in the fourth quarter of 2018 versus 6.4% the
prior year, reflecting increased cooperative advertisement and
freight as a percent of sales.
General and administrative expenses (G&A)
were $9.3 million in the fourth quarter of 2018 versus $8.8 million
last year. The fourth quarter of 2018 included $0.4 million of
severance as well as an additional $0.4 million of aggregate
one-time expense tied to (a) the advance purchase of $4.0 million
of inventory (to avoid higher Chinese tariffs contemplated in
2019); and (b) a bad debt reserve due to a small retail customer
bankruptcy. Conversely, the fourth quarter of 2017 included the
reversal of a $0.6 million bad debt charge originally taken in the
third quarter of that year related to the Toys “R” Us bankruptcy.
G&A as a percent of sales was 23.2% in the 2018 fourth quarter
versus 18.8% in 2017.
Interest expense was $1.1 million in the fourth
quarter of 2018 versus $0.8 million last year, with the
year-over-year increase primarily due to the Company’s refinancing
of its bank agreements and higher interest rates.
The Company reported a net loss of $2.0 million,
or $(0.10) per share, in the fourth quarter of 2018 compared with a
net loss of $1.7 million, or $(0.09) per share, in the prior-year
period. The fourth quarter of 2018 included an incremental $0.9
million non-cash tax charge as a result of the Tax Cuts and Jobs
Act (the “Tax Act”) enacted in December 2017. The Tax Act allows
for interest expense to be deductible for tax purposes up to 30% of
taxable EBITDA. SUMR Brands therefore recorded an interest-related
charge of $0.9 million and an offsetting full valuation allowance
on its deferred tax asset as a result of the Tax Act.
Adjusted EBITDA, as defined in the Company’s
credit agreements, for the fourth quarter of 2018 was $0.8 million
versus $1.8 million for the fourth quarter of 2017, and Adjusted
EBITDA as a percent of net sales was 2.1% in the fourth quarter of
2018 versus 3.8% last year. Adjusted EBITDA in 2018 included $0.5
million in bank permitted add-back charges compared with $0.5
million of deducted credits during the prior-year period. Adjusted
EBITDA, adjusted net loss, and adjusted loss per share are non-GAAP
metrics. An explanation is included under the heading below "Use of
Non-GAAP Financial Information," and reconciliations to GAAP
measures can be found in the tables at the end of this release.
Balance Sheet Highlights
As of December 29, 2018, Summer Infant had
approximately $0.7 million of cash and $47.9 million of bank debt
compared with $0.7 million of cash and $48.1 million of bank debt
as of December 30, 2017. The Company generated $5.5 million in cash
from operations during the twelve months ended December 29, 2018
compared to $1.2 million in the prior-year period.
Inventory as of December 29, 2018 was $36.1
million compared with $34.0 million as of December 30, 2017, with a
portion of the year-over-year increase due to $4.0 million of
purchases made ahead of potentially higher tariffs beginning in
2019. Trade receivables at the end of the year were $31.2 million
compared with $36.6 million at the end of fiscal 2017. Accounts
payable and accrued expenses were $37.1 million as of December 29,
2018 compared with $34.5 million at the beginning of the fiscal
year.
Annual Meeting
Summer Infant will host its Annual Stockholders’
Meeting on May 10, 2019. See the Company’s proxy filing for
additional information, when available.
Conference Call Information
Management will host a conference call to
discuss the financial results tomorrow, February 21, at 9:00 a.m.
Eastern. To listen to the live call, visit the Investor Relations
section of the Company's website at www.sumrbrands.com or dial
844-834-0642 or 412-317-5188. An archive of the webcast will be
available on the Company's website.
About SUMR Brands, Inc.
Based in Woonsocket, Rhode Island, the Company
is a global leader of premium infant and juvenile products which
are sold principally to large North American and international
retailers. The Company sells proprietary products in a number of
different categories including nursery, audio/video monitors,
safety gates, durable bath products, bed rails, nursery products,
strollers, booster and potty seats, swaddling blankets, bouncers,
travel accessories, highchairs, swings, and infant feeding
products. For more information about the Company, please visit
www.sumrbrands.com.
Use of Non-GAAP Financial
Information
This release and the referenced webcast include
presentations of non-GAAP financial measures, including Adjusted
EBITDA, adjusted net income/loss and adjusted earnings/loss per
diluted share. Adjusted EBITDA means earnings before interest
and taxes plus depreciation, amortization, non-cash stock-based
compensation expenses and other items added back as detailed in the
reconciliation table included in this release. Non-GAAP adjusted
net income/loss and adjusted earnings/loss per diluted share
exclude unamortized financing write off, a nonrecurring tax charge
and other items, and the tax impact of these items, as detailed in
the reconciliation table included in this release. Such information
is supplemental to information presented in accordance with GAAP
and is not intended to represent a presentation in accordance with
GAAP. The Company believes that these non-GAAP financial measures
provide useful information to investors to better understand, on a
period-to-period comparable basis, financial amounts both including
and excluding these identified items, as they indicate more clearly
the Company’s operations and its ability to meet capital
expenditure and working capital requirements. These non-GAAP
measures should not be considered in isolation or as an alternative
to such GAAP measures as net income, cash flows provided by or used
in operating, investing or financing activities or other financial
statement data presented in the Company’s consolidated financial
statements as an indicator of financial performance or
liquidity. The Company provides reconciliations of these
non-GAAP measures in its press releases of historical
performance. Because these measures are not determined in
accordance with GAAP and are susceptible to varying calculations,
these non-GAAP measures, as presented, may not be comparable to
other similarly titled measures of other companies.
Forward-Looking Statements
Certain statements in this release that are not
historical fact may be deemed “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe
harbor created thereby. These statements are accompanied by
words such as “anticipate,” “expect,” “project,” “will,”
“believes,” “estimate” and similar expressions, and include
statements regarding the Company’s expectations with respect to
future growth, demand for the Company’s products, revenue
acceleration and the impact of brand management and retail price
integrity actions on future performance. The Company cautions that
these statements are qualified by important factors that could
cause actual results to differ materially from those reflected by
such forward-looking statements. Such factors include the impact of
recently imposed tariffs or new tariffs on the cost and pricing of
the Company’s products; the Company’s ability to meet its liquidity
requirements; the concentration of the Company’s business with
retail customers; the ability of the Company to compete in its
industry; the Company’s ability to continue to control costs and
expenses; the Company’s dependence on key personnel; the Company’s
reliance on foreign suppliers; the Company’s ability to develop,
market and launch new products; the Company’s ability to manage
inventory levels and meet customer demand; the Company’s ability to
grow sales with existing and new customers and in new channels; the
Company’s ability to maintain availability under its loan
agreements; and other risks as detailed in the Company’s most
recent Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and other filings with the Securities and Exchange
Commission. The Company assumes no obligation to update the
information contained in this release.
Company Contact:Chris WittyInvestor
Relations646-438-9385cwitty@darrowir.com
Tables to Follow
Summer Infant, Inc. |
|
Consolidated Statements of
Operations |
|
(amounts in thousands of US dollars, except
share and per share data) |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 29, 2018 |
|
December 30, 2017 |
|
December 29, 2018 |
|
December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
40,048 |
|
$ |
46,816 |
|
$ |
173,619 |
|
$ |
189,869 |
|
Cost of
goods sold |
|
27,526 |
|
32,858 |
|
118,500 |
|
129,674 |
|
Gross profit |
|
$ |
12,522 |
|
$ |
13,958 |
|
$ |
55,119 |
|
$ |
60,195 |
|
General and
administrative expenses(1) |
|
9,293 |
|
8,818 |
|
38,880 |
|
38,878 |
|
Selling expense |
|
3,003 |
|
2,981 |
|
12,430 |
|
14,229 |
|
Depreciation and
amortization |
|
1,095 |
|
1,077 |
|
4,182 |
|
4,197 |
|
Operating
(loss)/income |
|
$ |
(869) |
|
$ |
1,082 |
|
$ |
(373) |
|
$ |
2,891 |
|
Interest expense |
|
1,142 |
|
762 |
|
4,442 |
|
2,968 |
|
(Loss)/income before
taxes |
|
$ |
(2,011) |
|
$ |
320 |
|
$ |
(4,815) |
|
$ |
(77) |
|
Income tax
(benefit)/provision |
|
(51) |
|
2,037 |
|
(564) |
|
2,172 |
|
Net
loss |
|
$ |
(1,960) |
|
$ |
(1,717) |
|
$ |
(4,251) |
|
$ |
(2,249) |
|
Loss per
diluted share |
|
$ |
(0.10) |
|
$ |
(0.09) |
|
$ |
(0.23) |
|
$ |
(0.12) |
|
|
|
|
|
|
|
|
|
|
|
Shares
used in fully diluted EPS |
|
18,807,033 |
|
18,621,977 |
|
18,744,424 |
|
18,573,398 |
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock
based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 29, 2018 |
|
December 30, 2017 |
|
December 29, 2018 |
|
December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
Net loss
(GAAP) |
|
$ |
(1,960) |
|
$ |
(1,717) |
|
$ |
(4,251) |
|
$ |
(2,249) |
|
Plus:
interest expense |
|
1,142 |
|
762 |
|
4,442 |
|
2,968 |
|
Plus:
(benefit)/provision for income taxes |
|
(51) |
|
2,037 |
|
(564) |
|
2,172 |
|
Plus:
depreciation and amortization |
|
1,095 |
|
1,077 |
|
4,182 |
|
4,197 |
|
Plus: non-cash stock based
compensation expense |
|
90 |
|
119 |
|
523 |
|
494 |
|
Plus: permitted add-backs
(a) |
|
530 |
|
(482) |
|
3,209 |
|
2,695 |
|
Adjusted
EBITDA (Non-GAAP)(b) |
|
$ |
846 |
|
$ |
1,796 |
|
$ |
7,541 |
|
$ |
10,277 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EPS |
|
|
|
|
|
|
|
|
|
Net loss
(GAAP) |
|
$ |
(1,960) |
|
$ |
(1,717) |
|
$ |
(4,251) |
|
$ |
(2,249) |
|
Plus:
permitted add-backs(a) |
|
530 |
|
(482) |
|
3,209 |
|
2,695 |
|
Plus:
unamortized financing fee write off(c) |
|
- |
|
- |
|
518 |
|
- |
|
Plus:
nonrecurring tax charge(d) |
|
933 |
|
1,731 |
|
933 |
|
1,731 |
|
Tax
impact of items impacting comparability(e) |
|
(149) |
|
169 |
|
(1,044) |
|
(943) |
|
Adjusted Net
(loss)/income (Non-GAAP) |
|
$ |
(646) |
|
$ |
(299) |
|
$ |
(635) |
|
$ |
1,234 |
|
Adjusted
(loss)/earnings per diluted share (Non-GAAP) |
|
$ |
(0.03) |
|
$ |
(0.02) |
|
$ |
(0.03) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Permitted add-backs consist of items that the Company is
permitted to add-back to the calculation of consolidated EBITDA
under its credit agreements. Permitted add-backs for the
three months ended December 29, 2018 include severance related
costs $422 ($118 tax impact) and board fees $108 ($31 tax
impact). Permitted add-backs for the three months ended
December 30, 2017 include board fees $100 ($35 tax impact) and
special projects $18 ($6 tax impact) less a credit to bad debt
($600) ($210 tax impact). Permitted add-backs for the twelve
months ended December 29, 2018 include bad debt allowance $1,780
($499 tax impact), severance related costs $863 ($242 tax impact),
board fees $400 ($112 impact), and special projects $166 ($46 tax
impact). Permitted add-backs for the twelve months ended
December 30, 2017 include bad debt allowance $1,520 ($532 tax
impact), severance related costs $578 ($202 tax impact), board fees
$378 ($133 tax impact), restructuring fees $238 ($83 tax impact),
less a credit to special projects, primarily litigation fees ($19)
($7 tax impact). |
|
|
|
|
|
|
|
|
|
|
|
(b) As defined by our credit facilities. |
|
|
|
|
|
|
|
|
|
|
|
(c) Write off of unamortized financing costs and termination
fees associated with the Company's old credit facility, reflecting
a $518 ($145 tax impact) charge for the twelve months ending
December 29, 2018. |
|
|
|
|
|
|
|
|
|
|
|
(d) In December 2017, the U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “Tax Act”) that significantly revised the U.S.
tax code effective January 1, 2018 by, among other things, lowering
the corporate income tax rate from a top marginal rate of 35% to a
flat 21%, limiting deductibility of interest expense and
performance based incentive compensation and implementing a
territorial tax system. This resulted in the Company recording a
one-time tax or “toll charge” of $843 on previously unremitted
earnings of foreign subsidiaries, a one-time write down of $772
related to foreign tax credits and a one-time write down of the
value of our deferred tax assets of $114 for the twelve months
ended December 30, 2017. The Company incurred nondeductible
interest for the twelve months ended December 29, 2018 and recorded
a valuation allowance on the associated deferred tax asset of $933.
These charges are expected to be noncash in nature. |
|
|
|
|
|
|
|
|
|
|
|
(e) Represents the aggregate tax impact of the adjusted items
set forth above based on the statutory tax rate for the periods
presented relevant to their jurisdictions. |
|
|
|
|
|
|
|
|
|
|
|
Summer Infant, Inc |
|
Consolidated Balance Sheet |
|
(amounts in thousands of US
dollars) |
|
|
|
|
|
|
|
|
|
|
December 29, 2018 |
|
|
December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
721 |
|
$ |
681 |
|
Trade
receivables, net |
|
31,223 |
|
|
36,640 |
|
Inventory, net |
|
36,066 |
|
|
34,035 |
|
Property and equipment, net |
|
9,685 |
|
|
9,640 |
|
Intangible assets,
net |
|
13,300 |
|
|
14,046 |
|
Other assets |
|
3,221 |
|
|
2,988 |
|
Total
assets |
$ |
94,216 |
|
$ |
98,030 |
|
|
|
|
|
|
|
|
Accounts
payable |
$ |
28,120 |
|
$ |
24,642 |
|
Accrued
expenses |
|
8,939 |
|
|
9,818 |
|
Current
portion of long-term debt |
|
875 |
|
|
3,250 |
|
Long
term debt, less current portion (1) |
|
44,641 |
|
|
43,772 |
|
Other
long term liabilities |
|
2,371 |
|
|
2,906 |
|
Total
liabilities |
|
84,946 |
|
|
84,388 |
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
9,270 |
|
|
13,642 |
|
Total
liabilities and stockholders’ equity |
$ |
94,216 |
|
$ |
98,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Under U.S. GAAP, long term debt is reported net of
unamortized financing fees. As a result, reported long term
debt is reduced by $2,395 and $1,127 of unamortized financing fees
in the periods ending December 29, 2018 and December 30, 2017,
respectively. |
|
|
|
|
|
|
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|
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