Comp store sales rose 4.8% in the fourth quarter at Eddie Bauer Holdings, Inc. and would have risen more if not for weak outlet store sales, the company said. Total revenues, meanwhile, rose 2.7% at the company. CEO Neil Fiske said EBHI made good progress cleaning up its marketing message, but has work to do on cutting costs. 


The retailer of outdoor lifestyle clothing said total revenues rose 2.7% to $392.4 million for the fourth quarter ended Dec. 29, 2007,  compared to $381.9 million in the fourth quarter of 2006.

 

Total comparable stores sales (retail and outlet stores combined) for the fourth quarter of 2007 rose 4.8%. Comparable retail stores sales increased by 8.6%, and comparable outlet store sales declined by 1.9%. Comparable store sales include net sales from retail and outlet stores that have been open for one complete fiscal year. Revenues from the Company's direct channel, which includes sales from its catalogs and websites, increased 9.7%.


Total revenues for the fourth quarter of 2007 included:



  • net merchandise sales of $377.6 million, as compared to $365.2 million in the fourth quarter of 2006;
  • shipping revenues of $9.3 million as compared to $10.0 million in the same period of 2006;
  • licensing royalty revenues of $3.4 million as compared to $4.7 million in the same period of 2006;
  • royalty revenues from foreign joint ventures of $2.0 million  and other revenues of $0.1 million, both of which were flat over the same period in 2006.

Net merchandise sales for the fourth quarter of 2007 included $274.2 million of sales, an increase of 1.2%, from the company's retail and outlet stores, and $103.4 million, an increase of 9.7%, of sales from its direct channel, which includes sales from its catalogs and websites.


This compares to $270.9 million of sales from the company's retail and outlet stores and $94.3 million of sales from its direct channel in the same period last year.

Gross margin for the fourth quarter of 2007 totalled $165.2 million, representing an increase of $0.8 million from $164.4 million for the fourth quarter of 2006. Gross margin percentage for the fourth quarter of 2007 decreased to 43.8%, compared to 45.0% for the year-ago period, due to markdowns on higher inventory and costs associated with the Company's customer loyalty program in 2007 compared to 2006.


Operating income declined to $47.5 million during the fourth quarter of 2007 from $52.1 million for the fourth quarter of the prior year. The decline in operating income was primarily driven by an increase in selling, general and administrative (SG&A) expenses during the fourth quarter and a decline in licensing revenues.


“From a sales perspective, this was a solid fourth quarter,” said Neil Fiske, Chief Executive Officer. “I was pleased with our holiday campaign and execution. Our catalogs improved in merchandising, photography and layout. Retail had a clear point of view and better presentation. And across all our channels and our advertising, we had a tight, focused message. Still, we must do better on our costs and inventory management in order to flow through more of the sales gain to the bottom line. We have taken aggressive action to get our costs in line and manage inventory more tightly — while rebuilding the fundamentals of the Eddie Bauer brand.”


Higher tax expenses on AR sale create net quarterly loss 


The company reported a net loss for the fourth quarter of 2007 of $18.2 million, or $0.59 per diluted share, compared to net income of $63.2 million, or $2.11 per diluted share, in the fourth quarter of 2006. The decline in fourth quarter income was driven primarily by one-time increases in tax expense associated with the company's sale of financing receivables referred to as SAC, and non-cash increases to the company's valuation allowances for net operating loss carryforwards.

Tax expense for the quarter increased by $93.8 million to $75 million, versus a tax benefit of $18.7 million in the fourth quarter of 2006. The company utilized its net operating loss carryforwards to offset income tax payments due on the SAC collections and SAC sale proceeds.

 

Included in fourth quarter 2007 results are non-operational income of $5.2 million related to a non-cash fair value adjustment on the company's convertible note embedded derivative liability and a $9.3 million gain on the sale of the company's net financing receivables.

 

Income from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the fourth quarter was $59.9 million when excluding certain non-recurring and non-operational items, compared to $67.8 million for the 2006 quarter.

 

“Looking forward, we are focused on the five key areas of our turnaround program: rebuilding the brand, revamping product, effectively marketing, cutting costs and building talent. We have filled out the senior leadership team and I am pleased with the progress we are making in each of these areas,” said Fiske.

FISCAL 2007 Results


For the fiscal year ended Dec. 29, 2007, total revenues were $1.04 billion, compared to $1.01 billion in fiscal 2006. Total revenues for 2007 included:



  • net merchandise sales of $989.4 million, an increase of 3.4% over $956.7 million in 2006;
  • shipping revenues of $34.2 million, an increase of $0.2 million over 2006;
  •  licensing royalty revenues of $13.8 million, a decrease of 11.8% from $15.7 million in 2006;
  • royalty revenues from foreign joint ventures of $6.3 million, a decrease of $0.3 million over 2006 and other revenues of $0.6 million, a slight increase over 2006.

Net merchandise sales for 2007 included $711.4 million of sales from the company's retail and outlet stores and $277.9 million of sales from its direct channel. This compares to $700.1 million of sales from the company's retail and outlet stores and $256.5 million of sales from its direct channel in 2006. Comparable store sales for fiscal year 2007 increased by 4.4%, and sales in the direct channel increased by 8.4%.


Gross margin for fiscal 2007 was $358.5 million, representing an increase of $5.0 million from the gross margin for the same period last year. Gross margin percentage for the year declined to 36.2%, compared to a gross margin percentage of 37.0% for 2006. The decline in the gross margin percentage versus the prior year was due primarily to a 0.8 percentage point decrease related to the Company's customer loyalty program and a 0.7 percentage point decrease in merchandise margins, driven in part by higher levels of inventory markdowns in the current year. These decreases were partially offset by a 0.7 percentage point improvement to gross margin resulting from a decrease in the Company's occupancy costs as a percentage of net merchandise sales.


Operating loss declined to $28.4 million during fiscal 2007, from $118.6 million for fiscal 2006. The fiscal 2006 loss included a $117.6 million impairment charge related to the company's goodwill. Excluding the impact of the 2006 impairment charge, the Company's operating loss increased by $27.4 million in 2007, primarily resulting from a $30.6 million increase in the company's SG&A expenses during fiscal 2007 as compared to the prior year. SG&A expenses during fiscal 2007 reflected $16.4 million of non-recurring expenses associated with the Company's terminated merger, resignation of the company's former CEO and an estimated settlement of litigation.


The company's net loss for the year was $101.7 million, or a loss of $3.33 per diluted share, compared to a net loss of $212.0 million, or a loss of $7.06 per diluted share in 2006. The 2007 net loss included several non-recurring expenses totaling $19.7 million including a loss on extinguishment of debt of $3.3 million recorded during the second quarter and $16.4 million of expenses related to the company's terminated merger, resignation of the company's former CEO and an estimated legal settlement.


Included in 2007 results are non-operational income of $10.5 million related to a non-cash fair value adjustment on the company's convertible note embedded derivative liability and a $9.3 million gain on the sale of the company's net financing receivables. The 2006 net loss of $212.0 million included a goodwill impairment charge of $117.6 million recorded in the 2006 third quarter, non-recurring expenses of $3.1 million in costs associated with the company's terminated merger agreement and a loss from discontinued operations of $0.5 million. Income tax expense for 2007 was $69.2 million compared to income tax expense of $65.5 million in 2006. Income tax expense for 2007 and 2006 included $30.6 million and $71.3 million, respectively, related to non-cash increases in the company's tax valuation allowances. Income tax expense for 2007 includes $36.8 million for the sale of the SAC receivables discussed above.

Income from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for 2007 was $41.9 million when excluding the above-mentioned non-recurring and non-operational items, compared to $56.4 million in the prior year. The decline in EBITDA was caused primarily by higher SG&A costs. EBITDA for 2007 included $9.9 million in non-cash, stock-based compensation expense, as compared to $10.2 million in 2006.


Eddie Bauer ended the year with 391 stores, a decrease of three stores from 2006. The Company opened 11 retail stores and one outlet store during the fourth quarter and closed two outlet stores. At year end, the Company operated 271 retail stores and 120 outlet stores.


 EDDIE BAUER HOLDINGS, INC.

              CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS


                          Three Months  Three Months
                             Ended         Ended
                          December 29,  December 30,
                             2007          2006       Fiscal 2007  Fiscal 2006
                          ($ in thousands, except per share data)
    Net sales and
     other revenues          392,430     381,919      1,044,353     1,013,447
    Costs of sales,
     including buying
     and occupancy           212,394     200,745        630,853       603,171
    Impairment of
     indefinite-lived
     intangible assets             –           –              –       117,584
    Selling, general and


     administrative expenses 132,517     129,098        441,875       411,300


        Total operating
         expenses            344,911     329,843      1,072,728     1,132,055


    Operating income (loss)   47,519      52,076        (28,375)     (118,608)
    Interest expense           6,987       7,480         26,698        26,928
    Other income              16,376         941         23,695         3,031
    Equity in earnings
     (losses)of foreign
      joint ventures             (20)     (1,083)        (1,147)       (3,413)


    Income (loss) from
     continuing operations
     before income tax
     expense (benefit)        56,888      44,454        (32,525)     (145,918)
    Income tax
     expense (benefit)        75,137     (18,699)        69,193        65,531


    Income (loss) from
     continuing operations   (18,249)     63,153       (101,718)     (211,449)
    Income (loss) from
     discontinued operations       –           –              –          (534)


    Net income (loss)       $(18,249)    $63,153      $(101,718)    $(211,983)


    Income (loss) per basic
     and diluted share:
      Loss from continuing
       operations per share   $(0.59)      $2.11         $(3.33)       $(7.04)
      Loss from discontinued
       operations per share        –           –              –         (0.02)
      Net loss per share      $(0.59)      $2.11         $(3.33)       $(7.06)
    Weighted average shares
     used to compute income
     (loss) per share:
       Basic              30,677,625  30,058,311     30,524,191    30,012,896
       Diluted            30,677,625  30,058,311     30,524,191    30,012,896