EVST Everlast Worldwide (MM)

Everlast� 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 2007 second quarter and six-months ended June 30, 2007. For the second quarter ended June 30, 2007, net revenues increased 24% to $12.2 million, compared to $9.8 million in the same period in 2006. Growth in net revenue resulted from a 28% increase in sporting goods sales to a record $8.7 million. The increase resulted from expanded distribution and continued strong sell-through. Net licensing revenues increased 15% to approximately $3.5 million vs. $3.0 million in the second quarter of 2006. The growth was driven by organic increases in licensing income by our worldwide licensees, particularly in South Korea, Chile and in select categories in the United States. In the second quarter of 2007, the Company�s gross margin was 54.1%, compared with 45.7% in the second quarter a year ago. The improvement was generated by a 14.2 percent improvement in sporting goods gross margins. The increase in sporting goods gross margins was due to a combination of higher initial margins on new products, logistical and operational efficiencies, and improvements in sourcing, benefiting from initiatives implemented since the second half of fiscal 2006. This was slightly offset by the revenue mix shift toward equipment. Second quarter operating income grew 36% to $2.1 million, or 17.5% of net revenues, versus the year-ago level of $1.6 million, or 15.9% of net revenues. This increase was primarily driven by higher revenues and improved gross profit margins, partially offset by planned increases in both marketing development initiatives and increased overhead costs within general and administrative expenses to support our Global Brand Integration. During the second quarter of 2007, the Company recorded a $4.2 million pre-tax non-recurring merger related charge related to a merger agreement, as amended, signed on June 28, 2007 with Brands Holdings Limited, a private company limited by shares incorporated in England and Wales, EWI Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Brands Holdings Limited (�Brand Holdings�) The $4.2 million pre-tax charge is made up of approximately $470,000 in costs associated with a follow-on common stock offering that we have agreed to cancel as a condition to the closing of this merger, $745,000 in transaction costs related to the pending merger and $3.0 million termination fee incurred as a result of the termination of the Hidary Group Acquisition LLC merger agreement signed on June 1, 2007. Adjusted earnings per diluted share for the second quarter of 2007, adding back approximately $0.63 of non-recurring merger related transaction costs and $0.05 of non-cash expense associated with stock-based compensation, was $0.21 per diluted share, a 62% increase over adjusted earnings of $0.13 per diluted share in 2006. The second quarter 2006 amount adds back approximately $0.03 of non-cash expense associated with stock-based compensation. Reported basic and diluted loss per share for the second quarter of 2007 was $(0.46) compared with earnings per diluted share of $0.10 in second quarter of 2006. Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said �We are very proud of the strong results we achieved for the second quarter. The 24% increase in net revenues and continued improvement in gross margins is enabling us to invest in our brand for both short-term and long-term growth to help us reinforce the premier brand our consumers have come to expect. Our sporting goods business continues to see strong sell-ins and sell-through, as evidenced by the 28% quarter over quarter increase, which has been consistent with the 25% plus percent year-over-year quarterly growth experienced in the last four sequential quarters. The additional volume and the significant reductions in sporting goods equipment product and logistical costs are enabling us to achieve significant improvements in our sporting goods gross margin, as demonstrated by the 14.2 percent improvement in the second quarter margins over the prior year quarter. Also strong, our licensing business grew at a 15% rate this quarter fueled by strong wholesale sales in South Korea, Chile, and licensed categories in North America.� Mr. Horowitz continued, �We continue to implement our Global Brand Integration, which is benefiting our entire business. We recently launched a U.S. trade print media campaign centered around our new tag-line, �Greatness is Within�� which also includes our refreshed Everlast logo and global company icon. This marketing message has been and will be communicated and tailored around our product deployment and targeted to capitalize on the growing consumer trends of product categories �Train, Compete, Live� within our sporting goods equipment, apparel and footwear product offerings. This strategy enables us to maximize the global positioning of our brand, utilizing the strengths of training, competitive and athleisure and sportswear products that we have exhibited in select territories and select categories and now aimed to achieve on a global basis. We have recently implemented this strategy by partnering with major sporting goods stores across the U.S. to build out Everlast concept and focus shops, including Dicks Sporting Goods stores, The Sports Authority stores and Big 5 Sporting Goods stores. � About Everlast Worldwide Inc. Everlast Worldwide Inc. is a leading designer, manufacturer and marketer of boxing and fitness related sporting goods equipment under the well-recognized Everlast brand name and a worldwide licensor of the Everlast brand for apparel, footwear, sporting goods equipment and other active lifestyle products and accessories. Since 1910, Everlast has been the preeminent brand in the world of boxing and among the most recognized brands in the overall sporting goods and apparel industries. In order to capitalize on the rich heritage and authenticity of the Everlast brand, the company has extended the Everlast brand outside of the boxing ring into complementary product categories. Our strategy is to continue to leverage the unique qualities represented by the Everlast brand�Strength, Dedication, Individuality and Authenticity � to become a leading global athletic brand and a necessary part of the lives of consumers who train, compete and live an active lifestyle. 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. (Tables Follow) EVERLAST WORLDWIDE INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS � Three Months Ended Six Months Ended June 30, June 30, � 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) � Net sales $8,674,000 $6,798,000 $17,723,000 $13,765,000 Net license revenues 3,482,000 3,039,000 6,809,000 6,042,000 Net revenues 12,156,000 9,837,000 24,532,000 19,807,000 � Cost of goods sold 5,585,000 5,340,000 11,878,000 10,869,000 � Gross profit 6,571,000 4,497,000 12,654,000 8,938,000 � Operating expenses: Selling and shipping 2,259,000 1,320,000 4,327,000 2,886,000 General and administrative 1,983,000 1,476,000 3,618,000 2,813,000 Stock-based compensation 202,000 135,000 363,000 219,000 4,444,000 2,931,000 8,308,000 5,918,000 � Operating income 2,127,000 1,566,000 4,346,000 3,020,000 � Other income (expense): Non-recurring merger related costs (4,215,000) - (4,215,000) - Gain on early extinguishment of preferred stock and prepayment of notes payable, net - - - 2,032,000 Interest expense and financing costs, net (848,000) (823,000) (1,761,000) (1,482,000) (5,063,000) (823,000) (5,976,000) 550,000 � (Loss) income before (benefit) provision for income taxes (2, 936,000) 743,000 (1,630,000) 3,570,000 � (Benefit) provision for income taxes (1,066,000) 341,000 (494,000) 684,000 � Net (loss) income ($1,870,000) $402,000 ($1,136,000) $2,886,000 � Basic weighted average common shares outstanding 4,078,000 3,883,000 4,072,000 3,750,000 Diluted weighted average common shares outstanding 4,078,000 4,157,000 4,072,000 4,033,000 � Net basic (loss) earnings per share ($0.46) $0.10 ($0.28) $0.77 Net diluted (loss) earnings per share ($0.46) $0.10 ($0.28) $0.72 Note: As a result of the net loss per share for the three and six months ended June 30, 2007, the denominator for fully diluted shares excludes the effects of stock options, warrants and other equity consideration aggregating to 307,000 and 336,000 respectively, as the results would be anti-dilutive. The basic per share affect of the non-cash stock based compensation and non-recurring merger related transaction costs, net of tax, is $0.68 per basic share. EVERLAST WORLDWIDE INC. & SUBSIDIARIES � CONSOLIDATED BALANCE SHEETS � June 30, December 31, 2007 2006 � ASSETS � Current assets: Cash and cash equivalents $ 150,000 $ 216,000 Accounts and licensing receivables - net 9,984,000 15,649,000 Inventories 9,577,000 8,766,000 Prepaid expenses and other current assets � 1,703,000 � 1,098,000 Total current assets 21,414,000 25,729,000 � Property and equipment, net 6,321,000 6,235,000 Goodwill 6,718,000 6,718,000 Trademarks, net 22,664,000 22,664,000 Restricted cash 1,136,000 1,109,000 Other assets � 2,485,000 � 2,821,000 $ 60,738,000 $ 65,276,000 � LIABILITIES AND STOCKHOLDERS' EQUITY � � Current liabilities: Due to factor 8,882,000 9,079,000 Accounts payable 4,418,000 5,638,000 Current maturities of long term debt 4,040,000 3,953,000 Mortgage payable 2,320,000 2,419,000 Accrued expenses and other liabilities � 971,000 � 1,696,000 Total current liabilities 20,631,000 22,785,000 � Other liabilities 1,380,000 667,000 Long term debt, net of current maturities � 17,785,000 � 19,161,000 Total liabilities � 39,796,000 � 42,613,000 � Stockholders' equity: Common stock, par value $.002;19,000,000 shares authorized,4,080,023 outstanding 10,000 10,000 Paid-in capital 17,811,000 17,380,000 Retained earnings � 3,848,000 � 6,000,000 21,669,000 23,390,000 Less treasury stock � (727,000) � (727,000) Total stockholders' equity � 20,942,000 � 22,663,000 $ 60,738,000 $ 65,276,000 EVERLAST WORLDWIDE INC. & SUBSIDIARIES � RECONCILIATION OF OPERATING INCOME TO EBITDA EXCLUDING CERTAIN NON-CASH CHARGES � Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) � Operating income as reported GAAP basis $2,127,000 $1,566,000 $4,346,000)0 $3,020,000 � Adjustments: Depreciation and amortization included in operating income 231,000 184,000 448,000 344,000 Non-cash stock based compensation 202,000 � 135,000 � 363,000 219,000 � Adjusted EBITDA (Earnings excluding certain costs before interest, taxes, depreciation and amortization) $2,560,000 $1,885,000 $5,157,000 $3,583,000 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.