Perry Ellis International reported flat earnings in the second quarter ended August 4. Sales were down in part due to business exits, but Original Penguin, Golf Sportswear and Nike all saw robust growth.

Key Fiscal Second Quarter 2019 Financial Highlights

  • Total revenues were $199 million, declining 3.5 percent on a GAAP basis (3.8 percent in constant currency) from $207 million reported in the second quarter of fiscal 2018
  • GAAP gross margin expanded 110 basis points to 38.1 percent as compared to 37.0 percent in the prior year period reflecting increases in margin
  • Adjusted pre-tax income of $3.6 million, rose 13 percent from adjusted pre-tax income of $3.2 million in the second quarter of fiscal 2018;
  • GAAP pre-tax loss was $4.1 million compared to pre-tax income of $2.7 million in the comparable period of fiscal 2018
  • Adjusted diluted EPS of $0.16 were flat versus the adjusted diluted EPS of $0.16 in the second quarter of fiscal 2018;
  • GAAP diluted loss per share was $0.21 compared to diluted EPS of $0.06 in the comparable period of the prior year

Key First Half 2019 Financial Highlights

  • Total revenues were $455 million, increasing 1.3 percent on a GAAP basis (0.7 percent in constant currency) from $449 million reported in the first six months of fiscal 2018
  • Core revenues, which exclude the impact of business exits, rose 3 percent
  • GAAP gross margin was flat at 37.3 percent
  • Adjusted pre-tax income of $19.1 million rose 9 percent from adjusted pre-tax income of $17.6 million in the first six months of fiscal 2018;
  • GAAP pre-tax income was $9.0 million compared to $17.2 million in the comparable period of the prior year
  • Adjusted diluted EPS of $0.94 declined 6 percent versus adjusted diluted EPS of $1.00 in the first six months of fiscal 2018;
  • GAAP diluted EPS was $0.45 compared to diluted EPS of $0.90 in the second quarter of fiscal 2018
  • First six months, cash flow from operations topped $31 million with net debt of 4.7 percent to total capitalization

Oscar Feldenkreis, chief executive officer and president, commented, “The second quarter completed a strong first half for Perry Ellis highlighted by core revenue growth, positive comparable store sales and expansion in gross margin, which drove an increase in adjusted pre-tax income versus the prior year first half. While second quarter sales were down in total due primarily to a shift to the first quarter and business exits as expected, of particular strength were our Original Penguin, Golf Sportswear and Nike brands. Clearly, our powerful portfolio of brands, the innovation in fashion and fabrication that resonates with consumers globally supported by a talented team and vast infrastructure continues to serve us well. We believe our brands and business are positioned for success as we enter the fall season.”

Fiscal 2019 Second Quarter Results

Total revenue was $199 million, a 3.5 percent decrease (3.8 percent increase in constant currency) compared to $207 million reported in the second quarter of fiscal 2018.

This decrease was primarily the result of the decline in the women’s business attributed to the loss of sales associated with Bon-Ton in the amount of $5 million and the transfer of the company’s Laundry dresses to a licensing partner. This decrease was partially offset by increases in Original Penguin and international business. International business increased by 10 percent. Revenue included a $1.3 million increase due to the adoption of the new revenue recognition standard, which requires advertising reimbursements to be classified as revenue instead of as a reduction of the related advertising costs as was the case in fiscal 2018.

Disciplined management of inventory, along with increased sales of higher margin brands, led to a 110 basis point expansion in GAAP gross margin to 38.1 percent in the second quarter of fiscal 2019 from 37.0 percent in the second quarter of fiscal 2018.

Selling, general and administrative expenses (“SG&A”) totaled $75.1 million as compared with $68.4 million in the comparable period of the prior fiscal year. SG&A in the second quarter of fiscal 2019 included $6.8 million of costs in connection with the board’s exploration and evaluation of potential strategic alternatives and the related February 6, 2018 proposal by George Feldenkreis to acquire all of the company’s outstanding common shares not already beneficially owned by Feldenkreis.

Adjusted EBITDA totaled $8.3 million as compared to $8.5 million in the comparable period of the prior year.

Adjusted pre-tax income was $3.6 million, increasing 13 percent from $3.2 million in the second quarter of fiscal 2018. GAAP pre-tax loss was $4.1 million compared to pre-tax income of $2.7 million in the comparable period of the prior fiscal year.

As reported under GAAP, the company’s second quarter of fiscal 2019 net loss was $3.3 million, or $0.21 per diluted share, compared to GAAP net income of $1.0 million, or $0.06 per diluted share, in the prior year period.

On an adjusted basis, the fiscal 2019 second quarter net income was $2.5 million, or $0.16 per diluted share, as compared to adjusted net income of $2.5 million, or $0.16 per diluted share in the second quarter of fiscal 2018.

Balance Sheet and Cash Flows

The company’s financial position continues to strengthen. Cash at the end of the second quarter of fiscal 2019 totaled $21 million with borrowings of $7 million on the company’s credit facility. The company’s net debt to total capitalization stood at 4.7 percent at the end of the second quarter of fiscal 2019 as compared to 8.6 percent at the end of the second quarter of fiscal 2018. The improvement was a result of the redemption of the remaining $50 million in notes payable. Working capital management continues to be a critical focus across the organization as inventory turned at approximately 4 times as of the end of the second quarter of fiscal 2019.

Fiscal 2019 Guidance

Due to the pending transaction with George Feldenkreis, the company is not providing guidance.