Broder Bros. reported that third quarter 2006 net sales were $249.2 million compared to $255.6 million for the third quarter 2005. Income from operations for the third quarter 2006 was $8.5 million compared to $7.8 million for the third quarter 2005. Third quarter 2006 net loss was $(3.2) million compared to net loss of $(1.7) million for the third quarter 2005. Third quarter 2006 earnings before interest, taxes, depreciation and amortization (EBITDA) was $13.9 million compared to EBITDA of $12.6 million for the third quarter 2005. A reconciliation of EBITDA to net loss is set forth at the end of this press release.
Results include the impact of certain restructuring, integration and other highlighted charges discussed below. Excluding these highlighted charges, EBITDA was $17.2 million for the third quarter 2006 and $14.0 million for the third quarter 2005.
Unit volume decreases during the third quarter 2006 compared to the third quarter 2005 were offset by increased average selling prices and increased gross profit per unit in the companys commodity trade brand products. Unit volumes and gross profit per unit declined during the third quarter 2006 compared to the third quarter 2005 in the companys private label and exclusive brand products. Lower private label and exclusive inventory levels led to volume declines, while air freight premiums to improve inventory service levels contributed to lower profitability per unit sold. The stronger performance in commodity trade brand products more than offset the weaker performance in private label and exclusive products as gross profit increased to $46.2 million for the third quarter 2006 compared to $44.2 million for the third quarter 2005.
The companys Broder division generated third quarter 2006 net sales of $98.9 million compared to $100.4 million in the third quarter 2005. The Alpha division generated third quarter 2006 net sales of $117.6 million compared to net sales of $121.7 million in the third quarter 2005. The NES division generated net sales of $32.7 million in the third quarter 2006 compared to net sales of $33.5 million in the third quarter 2005.
On September 28, 2006 the company acquired substantially all the assets of Amtex Imports Inc. (“Amtex”), an imprintable activewear distributor based in Northlake, Ill. The acquisition of Amtex will facilitate the companys entry into the Chicago market. Amtex is a single location distributor with approximately $40 million in annual revenues, approximately 40 employees, has product mix similar to the companys and has strong penetration in the Chicago market. The purchase price was approximately $6.8 million and the company acquired approximately $4.5 million in net working capital. The acquisition was financed with borrowings under the companys asset-based credit facility and was substantially supported by the incremental borrowing capacity provided by the assets of Amtex. The Amtex operating results coupled with anticipated synergies are expected to have a slight de-levering effect on the Company. The companys operating results reflected herein include the results of Amtex for only two business days.
Year-to-Date Results Compared to Prior Year
For the nine months ended September 2006, net sales were $718.3 million compared to $715.4 million for the nine months ended September 2005. Income from operations for the nine months ended September 2006 was $17.3 million compared to $18.9 million for the nine months ended September 2005. Net loss for the nine months ended September 2006 was $(8.7) million compared to net loss of $(5.2) million for the nine months ended September 2005. EBITDA for the nine months ended September 2006 was $32.0 million compared to EBITDA of $33.7 million for the nine months ended September 2005.
Excluding the highlighted charges denoted herein, EBITDA for the nine months ended September 2006 was $41.9 million compared to EBITDA of $37.0 million for the nine months ended September 2005.
Business Outlook
The company continues to execute its strategy to create multi-branded distribution centers to both improve inventory availability to customers and reduce overall inventory levels. Improved inventory availability is expected to generate increased revenue and profitability, as well as operational savings realized through higher volume relative to fixed costs. As disclosed in the second quarter 2006 press release, the company leased a 330,000 square foot facility in Fresno, CA and has consolidated its Alpha division La Mirada, CA and its Broder division Fresno, CA distribution facilities into the new multi-branded Broder-Alpha facility. The Fresno location began to operate in a multi-branded capacity in October 2006. To facilitate protection and growth of its market position in Southern California, the company will operate a scaled-down 30,000 square foot facility in Santa Fe Springs, CA which will offer an assortment of products customized to the local needs and preferences of the market and will serve as a customer pick-up operation for the Southern California market. The Santa Fe Springs location is expected to commence operations during the fourth quarter 2006.
The company will consolidate its Broder division Louisville, KY facility into its new 425,000 square foot facility in Chicago, IL during the fourth quarter 2006. In addition to the Louisville, KY consolidation into Chicago, the company expects to consolidate four additional Midwest distribution centers into its multi-branded Chicago facility. Similar to its strategy in Southern California, the company intends to operate scaled-down customer pick-up operations in certain Midwest locations where distribution centers are to be rationalized. The companys Midwest multi-brand consolidation strategy is expected to be substantially complete by the end of the third quarter 2007.
Immediate cash requirements to execute the multi-branded distribution center consolidation strategy are expected to be financed through capital lease transactions and borrowings on the existing revolving credit facility. Anticipated inventory reductions resulting from the consolidation strategy and the resulting debt reductions are expected to substantially offset the above cash outflows for the strategy.
During the third quarter 2006, the company completed its previously announced strategy to consolidate its call center operations from seven locations down to three locations. The action is expected to yield annualized operational cost savings of approximately $1.6 million while improving customer service levels.
