Broder Bros. reported fourth-quarter sales rose 5.1 percent to $226.7 million compared to $215.7 million for the fourth quarter 2010. Income from operations reached $12.8 million for the fourth quarter 2011, slightly ahead of $12.5 million for the fourth quarter 2010.
Net income for the fourth quarter 2011 was $17.0 million, or $1.65 per diluted share, compared to $10.1 million, or $0.99 per diluted share, for the fourth quarter 2010.
For the fourth quarter ended Dec. 31, the company reported earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $14.9 million compared to EBITDA of $16.0 million for the fourth quarter 2010. Results include the impact of certain restructuring and other highlighted charges discussed below. Excluding these highlighted charges, EBITDA was $15.0 million for the fourth quarter 2011 compared to $15.8 million for the fourth quarter 2010. A reconciliation of EBITDA to net income is set forth at the end of this earnings release.
Fourth quarter 2011 gross profit was $37.9 million compared to $40.9 million for the fourth quarter 2010. Fourth quarter 2011 gross margin was 16.7 percent compared to 19.0 percent for the fourth quarter 2010. The decline in gross profit was due to lower unit volume and a reduction in gross profit per unit. Higher average selling prices weakened demand.
According to data provided by CREST, the U.S. imprintable activewear market shrank 4 percent in units sold during the fourth quarter 2011. The company's units sold also declined by 4 percent during the period when using the comparable period used by CREST, which was Oct. 1, 2011 through Dec. 31, 2011. The company's fourth quarter 2011 began Sept. 25, 2011 and ended Dec. 31, 2011.
Fiscal 2011 Results Compared to Fiscal 2010 Results
Fiscal 2011 net sales were $848.2 million compared to $791.3 million for fiscal 2010. Income from operations was $55.7 million compared to $31.2 million for fiscal 2010. Fiscal 2011 net income was $45.7 million compared to $16.7 million for fiscal 2010.
EBITDA for fiscal 2011 was $65.4 million compared to $45.8 million for fiscal 2010. Excluding the impact of highlighted charges discussed below, Adjusted EBITDA for fiscal 2011 was $63.5 million compared to $46.1 million for fiscal 2010. Adjusted EBITDA for fiscal 2011 was in line with the Company's guidance of $62 million to $65 million.
Fiscal 2011 gross profit was $160.6 million compared to $147.1 million for fiscal 2010. Fiscal 2011 gross margin was 18.9 percent compared to 18.6 percent for fiscal 2010. The increase in gross profit was due to higher gross profit per unit and 5 percent fewer units sold. The increase in gross profit per unit is attributable to management's continued focus on improved pricing and purchasing activities which led to a 15 percent increase in gross profit per unit compared to fiscal 2010. Fiscal 2010 gross profit included the recognition of approximately $13.0 million for inventory gains resulting from the rising cotton apparel prices partially offset by the $6.5 million increase to inventory reserves previously noted.
According to data provided by CREST, the U.S. imprintable activewear market shrank 5 percent in units sold during 2011. The company's units sold also declined by 5 percent during the period when using the comparable period used by CREST, which was Jan. 1, 2011 through Dec. 31, 2011. The company's fiscal 2011 began Dec. 26, 2011 and ended Dec. 31, 2011.
Highlighted Charges
There were no credits to restructuring charges recorded in the fourth quarter 2011. The credit to restructuring charges during fiscal 2011 was due to a gain of approximately $2.2 million on the purchase of a leased facility in Wadesboro, NC. The net purchase price of the facility was less than the present value of the remaining lease payments due under the lease, which was set to expire in March 2014. Other expense consisted of the loss on sale of the facility, which the company had acquired in July 2011 and sold in August 2011.
During the fourth quarter 2010, company recorded a reduction to restructuring charges of $0.2 million, which consisted of a $0.3 million reduction to expense due a change in the estimate of future real estate taxes payable at one of its closed facilities, net of $0.1 million in interest accretion.
During fiscal 2010, the company recorded a reduction to restructuring charges of $0.3 million, which consisted of a $0.5 million reduction of expense due to a new sublease agreement for space at one of its closed facilities, plus a $0.3 million reduction of expense due to a change in the estimate of future real estate taxes payable at one of its closed facilities, net of $0.5 million in interest accretion. Other highlighted charges recorded during fiscal 2010 consisted of severance.
Liquidity Position
The company relies primarily upon cash flow from operations and borrowings under its revolving credit facility to finance operations, capital expenditures and debt service requirements. Borrowings and availability under the revolving credit facility fluctuate due to seasonal demands. Historically, borrowing levels have reached peaks during the middle of a given fiscal year and low points during the last quarter of the fiscal year. Borrowings under the revolving credit facility were $130.8 million at December 2011 compared to $115.3 million at December 2010. Borrowing base availability at Dec. 2011 and Dec. 2010 was $57.7 million and $40.0 million, respectively.
The company's December 2011 inventory was $47.6 million higher than the prior year. The increase in inventory was due to an increase in cost of sales per day at December 2011 compared to the prior year combined with fewer inventory turns at December 2011 compared to the prior year. At December 31, 2010, the company did not have the financial wherewithal to buy all the inventory that the company's proprietary supply chain practices indicated would maximize return on investment. At December 31, 2011, the company purchased goods to the level that would maximize return on investment.
The face value of the 2013 Notes outstanding was $117.9 million at December 2011 and December 2010. Guidance provided by the FASB for troubled debt restructuring, however, requires the 2013 Notes to be recorded on the balance sheets as the total future cash payments for the 2013 Notes, including both principal and interest payments. The 2013 Notes were recorded on the balance sheets at $146.1 million and $160.3 million for December 2011 and December 2010, respectively. As a result of capitalizing the cash interest payments for the 2013 Notes, the Company will not recognize any interest expense on the 2013 Notes. The company paid $7.1 million for each semi-annual cash interest payment due in April 2011 and October 2011. These payments were treated as reductions in the carrying value of the 2013 Notes.
STATEMENTS OF OPERATIONS | |||||||||||
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2011 AND DECEMBER 25, 2010 | |||||||||||
(dollars in millions, except per share amounts) | |||||||||||
(Unaudited) | |||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
Net sales | $226.7 | $215.7 | $848.2 | $791.3 | |||||||
Cost of sales (exclusive of depreciation | |||||||||||
and amortization as shown below) | 188.8 | 174.8 | 687.6 | 644.2 | |||||||
Gross profit | 37.9 | 40.9 | 160.6 | 147.1 | |||||||
Warehousing, selling and administrative | |||||||||||
expenses | 22.9 | 25.1 | 97.1 | 101.5 | |||||||
Depreciation and amortization | 2.1 | 3.5 | 9.9 | 14.6 | |||||||
Restructuring (credits) charges, net | 0.1 | (0.2) | (2.2) | (0.3) | |||||||
Stock-based compensation | 0.0 | 0.0 | 0.1 | 0.1 | |||||||
Operating expenses | 25.1 | 28.4 |
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