EVST Everlast Worldwide (MM)

Everlast Worldwide Inc. (Nasdaq: EVST): -- Second Quarter Operating Income Increases 53% to $1.6 million -- Second Quarter Operating Margin improves by 590 basis points to 15.9% -- Second Quarter EPS Increases to $0.13, prior to $0.03 of Option Expense, Versus Year-Ago Level of $0.08, from Continuing Operations -- Company Issues FY06 EPS Guidance, Prior to Option Expenses, of $0.68 to $0.73 Everlast(R) Worldwide Inc. (Nasdaq: EVST), manufacturer, marketer and licensor of sporting goods, apparel, footwear and other active lifestyle products under the Everlast brand name, today announced its financial results for its fiscal second quarter and six-months ended June 30, 2006. For the second quarter ended June 30, 2006, net revenues were $9.8 million, as compared to $10.3 million in the same period in 2005. Net licensing revenues for the second quarter of 2006 were $3.0 million, as compared to $2.9 million in the same period a year ago. As we announced in the first quarter, our licensing revenues have been impacted from the Company's decision not to renew its previous footwear license as well as an increase in licensing commissions resulting from the litigation settlement which requires the Company to pay commissions to a former agent of Everlast during 2006. These two factors negatively impacted licensing revenues in the second quarter by approximately $425,000. Revenues from sporting goods for the second quarter were $6.8 million as compared to $7.3 million in 2005. The slight decline was the result of a difficult comparison against the year-ago quarter, which was unusually strong as a result of the airing of season 1 of The Contender, which premiered March 2005. Season 2 of The Contender premiered on July 18, 2006, during the Company's fiscal third quarter. Gross margin for the quarter improved 330 basis points to 45.7%, compared with 42.4% in the second quarter a year ago. The higher gross profit margin was achieved from an increased mix of licensing revenues as well as improved margin on sporting goods equipment due to some operational efficiencies as well as production cost reductions. The Company achieved a 53% increase in operating income from continuing operations to approximately $1.6 million versus the year-ago level of approximately $1.0 million. The increase in operating income resulted from improved gross margins and a reduction in operating expenses, which improved by 260 basis points to 29.8% of sales compared with 32.4% of sales in the prior year's quarter. The operating expense improvement was primarily achieved by effective cost controls as well as a reduction in amortization expense. As was disclosed in the Company's first quarter 2006 financial results, the Company changed its accounting for the amortization of intangible assets and is no longer amortizing its trademark by $228,000 per quarter, based on the assessment that the Everlast trademark has an indefinite life. Adjusted earnings per diluted share, excluding the $0.03 effects of stock based compensation, for the second quarter of fiscal 2006 was $0.13 per diluted share, as compared to a net income from continuing operations of $0.08 per diluted share, in the 2005 comparable period. The Company believes that this is a more appropriate comparison as stock compensation costs were not included in the year-ago calculation. Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said "We are making excellent progress with our strategies to build our global brand identity, enhance our margins, and improve our working capital usage. This is clearly evident in our substantial profitability improvement for the second quarter. As a result of our success, we believe that we can sustain strong rates of growth for both sales and earnings for the foreseeable future. We have effectively controlled costs in both our corporate and our wholesale infrastructure, instituting lean manufacturing processes, and are achieving economies of scale as we grow our sporting goods business. Although our licensing revenues were affected by our decision to end sales of footwear with Footstar/Meldisco, we are excited to have reached a deal for men's, women's and kids athletic and casual footwear in the U.S. and Canada with E.S. Originals, Inc., a company that currently has a $1 billion retail footwear business. E.S. Originals will distribute the Everlast branded products beginning in the second quarter of 2007 to sporting goods, athletic footwear and department stores in the U.S. and Canada. Not only will this prove to be a significant category, but our distribution for this important product category is now properly aligned with the global brand position." Mr. Horowitz continued, "At the annual shareholder's meeting held in June, we committed to building a better audience in the financial community. As part of this process, we have commenced providing financial guidance. Thus, the Company is prudently forecasting the following financial guidance for fiscal year 2006: -- Net revenues ranging between $46 to $48.5 million -- EBITDA (excluding the effects of non-cash equity awards) ranging between $8.7 to $9.2 million -- Diluted earnings per share (excluding the effects of non-cash equity awards) between $0.68 and $0.73" The Company will be conducting a conference call today to discuss its second quarter 2006 results of operations and financial condition by hosting a conference call at 4:30 p.m. Eastern Time. Parties interested in participating in the conference call may dial-in at (800) 289-0572, while international callers may dial-in at (913) 981-5543. The conference call will be webcast and can be accessed at www.viavid.net. A recording of the conference call will be available until August 15, 2006 by dialing (888) 203-1112 or (719) 457-0820 for international callers, and the passcode is 9436570. About Everlast Worldwide Inc. Everlast Worldwide Inc. manufactures, markets and licenses sporting goods, apparel, footwear and other active lifestyle products under the Everlast brand name. Since 1910, Everlast has been the preeminent brand in the world of boxing and is among the most dominant brands in the overall sporting goods and apparel industries. Over the past 96 years, Everlast products have become the "Choice of Champions(TM)", having been used for training and professional fights by many of the biggest names in the sport. Everlast is the market leader in nearly all of its product categories, responsible for leading eight of the top ten boxing equipment products in sales. In addition to producing and marketing the equipment and accessories, Everlast Worldwide Inc. licenses its brand to providers of men's and women's sportswear and active wear, children's wear, footwear, watches, cardiovascular exercise equipment, nutritional foods and gym/duffel bags to name just a few categories. At the retail level, Everlast's licensed products generate more than $700 million in revenues. The company's Web site can be found at http://www.everlast.com. Statements made in this Press Release that are estimates of past or future performance are based on a number of factors, some of which are outside of the Company's control. Statements made in this Press Release that state the intentions, beliefs, expectations or predictions of Everlast Worldwide, Inc. and its management for the future are forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained from time to time in filings of Everlast Worldwide with the U.S. Securities and Exchange Commission. Copies of these filings may be obtained by contacting Everlast Worldwide or the SEC -0- *T EVERLAST WORLDWIDE INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------- 2006 2005 2006 2005 ---------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $6,798,000 $ 7,313,000 $13,765,000 $12,537,000 Net license revenues 3,039,000 2,938,000 6,042,000 6,038,000 ---------- ----------- ----------- ----------- Net revenues 9,837,000 10,251,000 19,807,000 18,575,000 ---------- ----------- ----------- ----------- Cost of goods sold 5,340,000 5,900,000 10,869,000 10,220,000 ---------- ----------- ----------- ----------- Gross profit 4,497,000 4,351,000 8,938,000 8,355,000 Operating expenses: Selling and shipping 1,320,000 1,152,000 2,886,000 2,357,0008 General and administrative 1,476,000 1,671,000 2,813,000 3,267,000 Restructuring and non- recurring charges - 273,000 - 273,000 Stock-based compensation and costs in connection with warrant issuance 135,000 - 219,000 182,000 Amortization - 228,000 - 456,000 ---------- ----------- ----------- ----------- 2,931,000 3,324,000 5,918,000 6,535,000 ---------- ----------- ----------- ----------- Income from continuing operations 1,566,000 1,027,000 3,020,000 1,820,000 ---------- ----------- ----------- ----------- Other income (expense): Gain on early extinguishment of preferred stock and prepayment of notes payable, net - - 2,032,000 - Interest expense and financing costs (826,000) (523,000) (1,494,000) (1,077,000) Investment income 3,000 5,000 12,000 11,000 ---------- ----------- ----------- ----------- (823,000) (518,000) (550,000) (1,066,000) ---------- ----------- ----------- ----------- Income before provision for income taxes from continuing operations 743,000 509,000 3,570,000 754,000 Provision (benefit) for income taxes 341,000 203,000 684,000 222,000 ---------- ----------- ----------- ----------- Net income from continuing operations $ 402,000 $ 306,000 $ 2,886,000 $ 532,000 ========== =========== =========== =========== Loss from discontinued components, net of tax - (902,000) - (1,221,000) ---------- ----------- ----------- ----------- Net income (loss) available to common stockholders $ 402,000 ($596,000) $ 2,886,000 ($689,000) ========== =========== =========== =========== Basic earnings per share from continuing operations $ 0.10 $ 0.09 $ 0.77 $ 0.16 ========== =========== =========== =========== Diluted earnings per share from continuing operations $ 0.10 $ 0.08 $ 0.72 $ 0.14 ========== =========== =========== =========== Basic loss per share from discontinued component - ($0.27) - ($0.38) ========== =========== =========== =========== Diluted loss per share from discontinued component - ($0.24) - ($0.33) ========== =========== =========== =========== Net basic earnings (loss) per share $ 0.10 ($0.18) $ 0.77 ($0.22) ========== =========== =========== =========== Net diluted earnings (loss) per share $ 0.10 ($0.16) $ 0.72 ($0.19) ========== =========== =========== =========== EBITDA (Operating earnings excluding certain non-cash and non-recurring costs) $1,885,000 $ 1,692,000 $ 3,583,000 $ 3,040,000 ========== =========== =========== =========== *T -0- *T EVERLAST WORLDWIDE INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 2006 2005 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 242,000 $ 58,000 Accounts and licensing receivables - net 7,609,000 11,117,000 Inventories 5,667,000 6,997,000 Inventories of discontinued component - 940,000 Prepaid expenses and other current assets 1,284,000 2,761,000 ----------- ----------- Total current assets 14,802,000 21,873,000 Property and equipment, net 6,243,000 6,213,000 Goodwill 6,718,000 6,718,000 Trademarks, net 22,664,000 22,664,000 Restricted cash 1,083,000 1,059,000 Other assets 2,711,000 2,914,000 ----------- ----------- $54,221,000 $61,441,000 =========== =========== LIABILITIES, REDEEMABLE PARTICIPATING PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Due to factor 2,978,000 13,028,000 Accounts payable 3,705,000 3,159,000 Current maturities of long term debt 2,775,000 2,141,000 Accrued expenses and other liabilities 1,295,000 3,252,000 ----------- ----------- Total current liabilities 10,753,000 21,580,000 License deposits payable 441,000 465,000 Long term debt, net of current maturities 24,145,000 26,531,000 ----------- ----------- Total liabilities 35,339,000 48,576,000 ----------- ----------- Stockholders' equity: Common stock, par value $.002; 19,000,000 shares authorized, 3,904,304 and 3,378,743 outstanding 10,000 8,000 Class A common stock, par value $.01; 100,000 shares authorized; 100,000 shares issued and outstanding - 1,000 Paid-in capital 15,437,000 12,307,000 Retained earnings 4,162,000 1,276,000 ----------- ----------- 19,609,000 13,592,000 Less treasury stock (727,000) (727,000) ----------- ----------- Total stockholders' equity 18,882,000 12,865,000 ----------- ----------- $54,221,000 $61,441,000 =========== =========== *T -0- *T EVERLAST WORLDWIDE INC. & SUBSIDIARIES RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA EXCLUDING CERTAIN NON-CASH CHARGES FROM CONTINUING OPERATIONS Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2006 2005 2006 2005 ---------- ---------- ------------ ---------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Income from continuing operations as reported GAAP basis $1,566,000 $1,027,000 $3,020,000 $1,820,000 ---------- ---------- ------------ ---------- Adjustments: Depreciation and amortization included in operating income 184,000 392,000 344,000 765,000 Restructuring and non- recurring costs - 273,000 273,000 Non-cash stock based compensation and non- cash costs in connection with warrant issuance 135,000 - 219,000 182,000 ----------- ----------- ------------ ---------- Adjusted EBITDA (Earnings excluding certain costs before interest, taxes, depreciation and amortization) $1,885,000 $1,692,000 $ 3,583,000 $3,040,000 ========== ========== ============ ========== Note: To supplement its financial statements presented on a GAAP basis, the Company uses non-GAAP additional measures of EBITDA adjusted to exclude certain non-cash costs in connection with stock based compensation and warrant issuance costs. The Company believes that the use of these additional measures is appropriate to enhance an overall understanding of its past financial performance. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or earnings per share prepared in accordance with generally accepted accounting principles in the United States. *T