Results of Operations
The following table sets forth the Company's Condensed Consolidated
Statements of Operations in thousands of dollars and as a percentage
of net revenues for the three and nine months ended September 30,
2011 and September 30, 2010.
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Net sales
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$
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116,233
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90.8
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%
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$
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107,493
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90.3
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%
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$
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315,572
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90.8
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%
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$
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303,774
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90.3
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%
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Royalty revenue
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11,782
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9.2
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11,543
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9.7
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32,161
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9.2
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32,747
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9.7
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Net revenues
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128,015
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100.0
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119,036
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100.0
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347,733
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100.0
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336,521
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100.0
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Gross profit (1)
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48,212
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37.7
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50,625
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42.5
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131,379
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37.8
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143,363
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42.6
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Selling, general and administrative expenses
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42,281
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33.1
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48,318
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40.6
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129,027
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37.2
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138,990
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41.3
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Store closings and severance costs
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--
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--
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--
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--
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12,482
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3.6
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--
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--
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Operating income/(loss)
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5,931
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4.6
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2,307
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1.9
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(10,130
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(3.0
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4,373
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1.3
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Interest and other income, net
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44
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0.1
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77
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0.1
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164
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0.1
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1,109
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0.3
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Impairment of investments
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(29
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(0.1
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(279
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(0.2
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(405
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(0.1
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(347
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(0.1
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Income/(loss) before income taxes
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5,946
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4.6
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2,105
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1.8
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(10,371
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(3.0
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5,135
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1.5
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Income tax expense
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188
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0.1
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85
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0.1
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494
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0.1
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346
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0.1
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Net income/(loss)
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$
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5,758
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4.5
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%
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$
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2,020
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1.7
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%
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$
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(10,865
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(3.1
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)%
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$
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4,789
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1.4
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%
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_______________________
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(1) Gross profit may not be comparable to other entities, since some
entities include the costs related to their distribution network
(receiving and warehousing) in cost of goods sold and other entities,
similar to the Company, exclude these costs from gross profit,
including them instead in a line item such as selling, general and
administrative expenses.
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Three Months Ended September 30, 2011 Compared to Three Months Ended
September 30, 2010
NET REVENUES: Net revenues increased 7.5%, or $9.0 million, to $128.0
million for the three months ended September 30, 2011 from $119.0
million for the three months ended September 30, 2010. The increase
in revenues is primarily due to increased apparel sales in the
Wholesale segment partially offset by a comparable store sales
decrease and the Company's closing of nineteen stores since September
30, 2010. Excluding sales from closed stores, net revenues increased
13.3%.
NET SALES: Wholesale net sales increased 27.5%, or $17.2 million, to
$79.7 million for the three months ended September 30, 2011 compared
to $62.5 million for the three months ended September 30, 2010. The
Company had increases across all product categories, with the largest
contributions coming from increased apparel and international sales
of $15.5 million..
Net sales in the Company's Consumer Direct segment decreased 18.8%,
or $8.5 million, to $36.5 million for the three months ended
September 30, 2011 from $45.0 million for the three months ended
September 30, 2010. Sales decreased primarily as a result of the
closing of stores during the past twelve months and a 10.1%
comparable stores decrease partially offset by incremental sales from
new stores not in the comparable base. Of the sales decreases, $6.1
million were from stores open during the three months ended September
30, 2010, but closed subsequently, while the comparable store sales
decrease was $3.5 million. Comparable stores are defined as new
stores that are open for longer than thirteen months. A store that
stops operations is included in the comparable sales calculation
through the date of closing. The Company did not open or close any
stores during the three months ended September 30, 2011 and 2010.
ROYALTY REVENUE: Royalty revenue increased 2.1%, or $0.3 million, to
$11.8 million for the three months ended September 30, 2011 from
$11.5 million for the three months ended September 30, 2010 primarily
due to an increase in contractual royalty minimums offset by a
reduction of royalties from the termination of the women's sportswear
license and the non-renewal of the
Le Tigre
license with JC Penney in prior periods. The Company recorded no
licensing revenue for women's sportswear and
Le Tigre
during the three months ended September 30, 2011 versus $0.8 million
during the three months ended September 30, 2010. Excluding royalties
from the women's sportswear and
Le Tigre
licenses
,
royalty revenue increased 9.7%.
GROSS PROFIT: Consolidated gross profit, as a percentage of net
revenues, decreased to 37.7% for the three months ended September 30,
2011 from 42.5% for the three months ended September 30, 2010. The
480 basis point decrease resulted primarily from decreases within the
Wholesale segment due to on-going cost pressures on initial mark-ups
and the revenue mix shifting to the Wholesale segment. For the near
term, the Company believes the shift in sales mix to the Wholesale
segment will continue and accordingly the consolidated gross profit,
as a percentage of net revenues, is expected to be lower year over
year. The Consumer Direct segment, which operates at a higher gross
profit level than the Wholesale segment, had decreased revenues as a
percentage of net revenues of 28.5% for the three months ended
September 30, 2011 from 37.8% for the three months ended September
30, 2010, while the Wholesale segment revenues, as a percentage of
net revenues, increased to 62.3% for the three months ended September
30, 2011 from 52.5% for the three months ended September 30, 2010.
The revenues in the Licensing segment, which carries nominal cost of
goods sold, decreased, as a percentage of net revenues, to 9.2% for
the three months ended September 30, 2011 compared to 9.7% for the
three months ended September 30, 2010.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses,
including warehousing and receiving expenses, as a percentage of net
revenues, decreased 750 basis points to 33.1% for the three months
ended September 30, 2011 as compared to 40.6% for the three months
ended September 30, 2010. Total SG&A decreased $6.0 million to $42.3
million for the three months ended September 30, 2011 from $48.3
million for the three months ended September 30, 2010. The decrease
in SG&A expenses was the result of an ongoing focus on cost
efficiencies and the elimination of overhead related to closed,
unproductive retail stores slightly offset by costs associated with
startup of the women's and
Reaction
men's apparel businesses.