As a result of continued softness at the Company’s Trotters and Altama Footwear brands, Phoenix Footwear Group expects to report a net loss per share for the 2004 fourth quarter, as compared to the $0.02 per fully diluted share reported for the fourth quarter of 2003. As a result, while the Company is expected to remain solidly profitable for the year, it will not meet its previous full year guidance of $0.65-$0.70 per diluted share for 2004.
Phoenix Footwear also provided financial guidance for the full year ended December 31, 2005. For the full year 2005, the Company expects to report overall revenues of $90 to $95 million and diluted EPS of $0.65 to $0.70. Included in projected EPS is $0.12 per share in amortization charges of acquisition-related intangibles and charges related to the expensing of stock to employees in the Company’s 401(k) savings plan. These projections are based upon current Spring backlog and projected Fall sales for 2005 for the Company’s SoftWalk, H.S. Trask and Royal Robbins brands, offset by sales that are expected to run below 2004 levels for Altama Footwear and the Trotters brand. These projections do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after the date of this press release.
Phoenix Footwear’s growth strategy includes a significant focus on acquiring, integrating and improving the performance of footwear and apparel brands. This process may result in revenue and earnings volatility in the short-term as the Company repositions and invests in acquired assets. Going forward, the Company has elected to return to its practice of providing annual guidance only and will discontinue providing quarterly financial guidance and the short-term view they engender. The Company will update investors on its annual guidance within its quarterly earnings releases throughout the year. In addition, Phoenix Footwear is adopting a policy of providing historical growth rates for each of its brands in future earnings releases. The Company also plans to expand its commentary on operating developments and strategy at each of its brands, to inform investors of its efforts to improve the positioning of its brands and create long-term shareholder value.
Royal Robbins posted an outstanding year in 2004, with net sales increasing approximately 30% for the full year compared to pro forma net sales for 2003. During 2004, Royal Robbins expanded its distribution base among new channels, including Dillard’s and Dick’s Sporting Goods. Royal Robbins continues to expand its Fall 2005 offering and is experiencing strong acceptance of its product at retail. Royal Robbins recently added a national sales manager and is expected to post strong organic growth in 2005.
SoftWalk completed 2004 with net sales growth of approximately 8% over the previous year, representing the brand’s fourth consecutive year of growth. During the year, SoftWalk added four additional sales positions, partially in anticipation of the initial build-out of Strol, the men’s version of the brand. SoftWalk continues to refine and expand its product offering and is enjoying significant growth in futures for the Spring of 2005, which is expected to produce positive organic growth for the year.
During the fourth quarter, the Company’s Trotters brand continued to experience lower sell through and reorder rates compared to previous quarters. For the full year, Trotters net sales decreased approximately 4% versus 2003. As previously reported, the Company is taking steps to redesign and reposition the Trotters line of footwear. Additionally, the Company has added two additional sales positions to the brand as part of an effort to broaden distribution. While Trotters is experiencing modest growth in its bookings for Spring 2005, sales are expected to remain largely flat for the entirety of the year.
In 2004 the Company completely redesigned and repositioned its H.S. Trask line. As a result, H.S. Trask’s net sales decreased approximately 21% for the full year compared to pro forma net sales for 2003. The Company recently added two new sales positions to the brand. H.S. Trask’s new product is performing well at retail and the brand has already received and is shipping significant orders for its newly launched women’s product line. Future orders for H.S. Trask are also up and the Company expects this momentum to accelerate in 2005 and to result in significant organic growth for the full year.
During the fourth quarter of 2004 the Company’s Altama unit continued to experience delays in the quantity and shipments of product related to a multiyear contract with the Department of Defense (DOD). As a result, Altama’s net sales during the past two quarters have declined approximately 33% compared to net sales in the brand for the prior year quarters. The Company expects orders and shipments under its DOD contract to continue at the current levels throughout 2005. The Company expects two sizable DOD combat boot procurements to be solicited during 2005 and believes that Altama is well positioned to participate in both. Additionally, Altama has taken steps to expand its non-DOD commercial business, including hiring three new sales representatives focused on this market and developing a public safety footwear line, which will be introduced at the WSA show in February in Las Vegas.
James R. Riedman, Chairman, commented, “While we will report strong revenue growth overall and solidly profitable results for 2004, we are disappointed with the performance of our Altama and Trotters brands. Altama remains a profitable unit and we believe we are taking the right steps to address the slowdown at this and our other brands through investment in new product and sales personnel, while preserving our overall profitability. We remain committed to prudently building a portfolio of profitable and sustainable specialty brands that will generate returns for our shareholders over time.”
Richard White, Chief Executive Officer, commented, “We are committed to restoring the Trotters brand to growth through our redesign and marketing efforts. At Altama, while our existing combat boot business with the DOD has declined, we are pursuing new DOD contracts and have launched a new product line centered on the Public Safety arena. In addition, our remaining brands are off to a promising start in 2005 as our repositioning efforts at H.S. Trask are leading to a positive response in the market and our Royal Robbins and SoftWalk brands are very well positioned for growth in the year ahead. We look forward to providing more details on our progress when we report our full 2004 results in February.”
