Phoenix Footwear’s Q3 Sales Dip

Phoenix Footwear, the parent of Trotters and SoftWalk, reported sales decreased 4 percent in the third quarter.

The decline was wholly attributable to a reduction in sales of Trotters branded product as the company reduced its footprint in a large national account. This realignment in distribution, combined with the company’s earlier implementation of a MAP (Minimum Advertised Pricing) policy resulted in a decrease in Net sales of 8.4 percent for the current quarter compared to the third quarter of 2014.

During the quarter, the company continued to implement its occupational footwear strategy, delivering growth in excess of 85.0 percent for the third consecutive quarter and 107.1 percent growth year to date.

Operating earnings for the third quarter decreased by $651,000 to $96,000, compared to the third quarter of 2014, as the company made select investments to support its occupational expansion and incurred onetime charges related to its realignment in distribution.

EBITDA totaled $162,000 for the period and $107,000 for the first nine months of 2015 compared to $549,000 and $1.06 million for the respective quarter and first nine months of 2014.

As of October 3, 2015, the company was not in compliance with its Fixed Coverage Ratio. On November 6, 2015, the company received a waiver of covenant default from NewStar for the period ended October 3, 2015.

The company further strengthened its management team with the addition of Kevin Flanagan as Vice President of Marketing. Prior to joining Phoenix, Flanagan held senior marketing roles with both the Reef and Oakley brands. Additionally, Mr. Flanagan was a founder of The People’s Movement, an eco-friendly footwear brand.

THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 2015

For the quarter ended October 3, 2015, net sales decreased by $533,000, or 8.4 percent, to $5.82 million compared to $6.36 million for the third quarter of fiscal 2014. The decrease in net sales for the quarter was associated with a reduction of the company’s presence in a large national retailer, along with an increase in the accrual for allowances and other discounts provided to this customer that was partly offset by an 85.5 percent increase in net sales of licensed occupational footwear sold primarily in the medical uniform channel.

Net sales for the first nine months of fiscal 2015 increased $209,000, or 1.3 percent, to $16.55 million compared to $16.35 million for the first nine months of fiscal 2014. The increase in net sales for the first nine months of fiscal 2015 was primarily driven by a 107.1 percent increase in sales of licensed footwear first introduced during fiscal 2014, together with increased sales to the company’s internet, and catalog retail customers, that was partly reduced by an increase in allowances and discounts provided to a large national retailer, primarily as a result of the implementation of the company’s minimum advertised pricing policy, combined with reduced sales in the independent channel of distribution.

Gross profit for the third quarter of fiscal 2015 decreased $500,000, or 20.5 percent, to $1.9 million from $2.4 million when compared to the third quarter of fiscal 2014. Gross profit as a percentage of net sales for the third quarter of fiscal 2015 decreased to 33.2 percent compared to 38.3 percent for the third quarter of fiscal 2014. The decrease in the gross profit as a percentage of net sales for the quarter consisted of an increase in allowances and discounts provided to large national retailer, primarily associated with the implementation of the company’s minimum advertised pricing policy, together with an increase in air freight associated with the increased demand of lower margin licensed occupational footwear, and the clearance of phased-out and discontinued footwear during the period.

Gross profit decreased $506,000, or 8.5 percent, to $5.5 million in the first nine months of fiscal 2015 compared to $6.0 million for the first nine months of fiscal 2014. Gross profit as a percentage of net sales for the first nine months of fiscal 2015 decreased to 32.9 percent compared to 36.4 percent for the first nine months of fiscal 2014. Lower gross margins for the first nine months of fiscal 2015 consisted of an increase in allowances and discounts provided to large national retailer, primarily associated with the implementation of the company’s minimum advertised pricing policy, together with an increase in air freight associated with the increased demand of lower margin licensed occupational footwear, and onetime increase in product development costs during the period.

SG&A for the third quarter of fiscal 2015 increased to $1.8 million or 8.9 percent compared to $1.7 million for the third quarter of fiscal 2014. SG&A as a percentage of net sales increased to 31.6 percent for the third quarter of fiscal 2015 from 26.6 percent when compared to the same period of fiscal 2015. The increase in SG&A for the quarter was primarily associated with planned increases in sales, sales support and distribution personnel, and planned increase in selling and other marketing activities during the period.

SG&A for the first nine months of fiscal 2015 increased to $5.6 million or 10.3 percent compared to $5.0 million for the first nine months of fiscal 2014. SG&A as a percentage of net sales increased to 33.6 percent from 30.8 percent when compared to the same period of fiscal 2014. The increase in SG&A for the quarter was primarily associated with planned increases in sales, sales support and distribution personnel, and planned increase in selling and other marketing activities during the period, together with onetime increase in temporary labor in the company’s warehouse and distribution center and non-cash vesting of employee performance stock options in the first quarter.

The company reported a net loss from continuing operations of $45,000 or $0.00 per share for the third quarter, compared to a net operating income from continuing operations of $548,000 or $0.07 per share during the third quarter of fiscal 2014.

For the first nine months of fiscal 2015, the company reported a net loss from continuing operations of $735,000 or $0.07 per share, compared to net income from continuing operations of $353,000 or $0.04 per share for the first nine months of fiscal 2014.

Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for the first nine months of fiscal 2015 was $107,000 compared to $1.06 million for the first nine months of fiscal 2014.