Eddie Bauer Holdings third quarter total revenues were $211.0 million compared to $211.3 million in the third quarter of 2006. Comparable stores sales rose 3.4% while revenues from the Company's direct channel, which includes sales from its catalog and websites, declined by 0.7%.
Operating loss improved from a $134.1 million loss during the year-ago third quarter to a $26.5 million loss for the third quarter of this year. The third quarter operating loss of the prior year quarter included a $117.6 million asset impairment charge related to the writedown of the Company's goodwill.
Total revenues for the third quarter of 2007 included net merchandise sales of $198.8 million, shipping revenues of $7.3 million, licensing royalty revenues of $3.4 million, royalty revenues from foreign joint ventures of $1.3 million, and other revenues of $0.1 million. In the third quarter of 2006, total revenues included net merchandise sales of $199.3 million, shipping revenues of $7.3 million, licensing royalty revenues of $3.2 million, royalty revenues from foreign joint ventures of $1.4 million, and other revenues of $0.1 million.
Net merchandise sales for the third quarter of 2007 included $149.4 million of sales from the Company's retail and outlet stores and $49.4 million of sales from its direct channel. This compares to $149.5 million of sales from the Company's retail and outlet stores and $49.8 million of sales from its direct channel in the third quarter last year.
Gross margin for the third quarter of 2007 was $59.4 million, a decrease of $1.4 million from $60.8 million for the third quarter of 2006. Gross margin percentage for the third quarter of 2007 declined to 29.9% from 30.5% for the year-ago quarter. The decrease reflects a 0.4 percentage point negative impact from costs associated with the customer loyalty program the Company introduced in September 2006 and a 0.2 percentage point negative impact from the Company's merchandising margins.
The net loss for the third quarter of 2007 was $16.4 million, or 54 cents per diluted share, compared to a net loss of $197.6 million, or $6.58 per diluted share, in the third quarter of 2006, which included the $117.6 million asset impairment charge. The net loss for the third quarter of 2007 also reflected an $8.7 million increase in selling, general and administrative expenses from the prior-year quarter due in part to costs associated with executive recruitment, corporate headquarters move and higher professional services fees.
Income tax benefit for the third quarter of fiscal 2007 was $4.2 million compared to income tax expense of $55.6 million in the third quarter last year, which included $52.7 million of expense associated with the increase in the Company's valuation allowance related to its net operating losses.
Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the third quarter of 2007 was a loss of $15.2 million when excluding certain non-recurring and non-operational items, compared to a loss of $3.1 million for the third quarter of 2006 when excluding the goodwill impairment charge and certain non-recurring items. The 2007 non-operational item included $11.3 million of income associated with a non-cash fair value adjustment on the Company's convertible note embedded derivative liability, while the 2006 non- recurring item included $747,000 in costs associated with the Company's terminated merger agreement. EBITDA is a non-GAAP financial measure that management believes is an important metric because it is a key factor in how it measures its operating performance. See Reconciliation of Non-GAAP Financial Measures for a reconciliation of EBITDA to its most comparable GAAP measure income (loss) from continuing operations before income tax benefit/expense. In addition, the Company incurred pre-tax non-cash stock- based compensation expense of $1.7 million in both the third quarters of 2007 and 2006.
Neil S. Fiske, President and Chief Executive Officer, said, “Overall, this was a difficult quarter with a few bright spots. While sales were roughly flat and margin dollars were down slightly, bottom-line results were negatively impacted by a number of non-recurring, transitional costs. Importantly, we have been encouraged with the early response to some of the changes we have been making in our retail stores, including good results from our semi-annual pant event in September, which contributed to an 8.6% increase in comparable store sales for September in our retail stores, and our 67th Anniversary down event just concluded in stores.
“Our team is working hard to take the necessary steps to get the business back on track, and we are making good progress on a number of fronts. We have significantly rebuilt our senior management team with the appointment of three new executives including a new Chief Financial Officer, General Counsel and Head of Sourcing and Supply Chain. We also are moving forward with key brand, merchandising and marketing strategies to improve performance and restore long-term growth, and we are in the process of developing a significant cost reduction plan for 2008. We expect that this plan will result in reductions to our operating cost structure of $25 to $30 million in 2008. I continue to be confident that Eddie Bauer, once a great brand, has real comeback potential, and we have seen some encouraging early signs,” Mr. Fiske concluded.
Year-to-Date Results
For the nine months ended September 29, 2007, total revenues were $651.9 million, up 3.2% from $631.5 million in the nine-month period a year ago. Total revenues for the nine-month period included net merchandise sales of $611.7 million, shipping revenues of $24.9 million, licensing royalty revenues of $10.4 million, royalty revenues from foreign joint ventures of $4.3 million, and other revenues of $0.5 million. In the nine-month period of 2006, total revenues included net merchandise sales of $591.5 million, shipping revenues of $24.0 million, licensing royalty revenues of $11.0 million, royalty revenues from foreign joint ventures of $4.6 million, and other revenues of $0.4 million.
Net merchandise sales for the nine-month period of 2007 included $437.2 million of sales from the Company's retail and outlet stores and $174.5 million of sales from its direct channel. This compares to $429.2 million of sales from the Company's retail and outlet stores and $162.2 million of sales from its direct channel in the same period last year. Comparable store sales for the nine-month period of 2007 increased by 4.2% and sales in the Company's direct channel increased by 7.6%.
Gross margin for the nine months ended September 29, 2007 was $193.3 million, an increase of $4.2 million from a gross margin of $189.1 million for year-ago nine-month period. Gross margin percentage for the first nine months of 2007 declined to 31.6% from a gross margin percentage of 32.0% for the 2006 nine-month period. The decline in gross margin percentage for the nine-month period versus that of the prior year period was due primarily to a 1.0 percentage point decrease related to the Company's customer loyalty program. This decrease was partially offset by a 0.3 percentage point improvement to gross margin resulting from a decrease in the Company's occupancy costs as a percentage of net merchandise sales and a 0.2 percentage point improvement in gross margin from a reduction in intangibles amortization.
The Company's net loss for the nine-month period of 2007 was $83.5 million, or $2.74 per diluted share, compared to a net loss of $275.1 million, or $9.17 per diluted share, in the nine-month period of 2006. The net loss of $83.5 million in the first nine months of 2007 included several non-recurring expenses totaling approximately $19.7 million including: (i) a loss on debt extinguishment of $3.3 million recorded during the second quarter; (ii) a $5 million merger termination fee and $1.4 million in legal fees and expenses related to the Company's proposed sale to an affiliate of Sun Capital Partners and Golden Gate Capital recorded in the first quarter; (iii) $8.4 million of expenses, including $3.2 million of accelerated stock-based compensation expense, related to the resignation of the Company's former Chief Executive Officer recorded in the first quarter; and (iv) a $1.6 million legal settlement recorded in the first quarter. These non-recurring expenses recorded during 2007 were partially offset by non-operational income of $5.3 million recorded during the nine-month period of 2007 related to a non-cash fair value adjustment on the Company's convertible note embedded derivative liability. The net loss of $275.1 million for the first nine months of 2006 included the above-mentioned $117.6 million asset impairment charge; non- recurring expenses of $1.3 million in costs associated with the Company's terminated merger agreement; and a loss from discontinued operations of $534,000.
Income tax benefit for the nine-month period of 2007 was $5.9 million compared to income tax expense of $84.2 million in the same period of 2006, which included $76.1 million of expense associated with the increase in the Company's valuation allowance related to its net operating losses.
Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the nine months ended September 29, 2007 was a loss of $18.0 million when excluding the above-mentioned non-recurring and non-operational items, compared to a loss of $11.4 million for the same period a year ago. In addition, the Company incurred pre-tax non-cash stock-based compensation expense of $7.8 million in the first nine months of 2007, which included the $3.2 million related to the resignation of the former Chief Executive Officer recorded during the first quarter of 2007, as compared to $8.1 million in the nine-month period of 2006.
EDDIE BAUER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 29, September 30, September 29, September 30,
2007 2006 2007 2006
Net sales and
other revenues $210,952 $211,285 $651,923 $631,528
Costs of sales,
including buying
and occupancy 139,472 138,536 418,459 402,426
Impairment of
indefinite-lived
intangible assets -- 117,584 -- 117,584
Selling, general and
administrative
expenses
98,018 89,307 309,358 282,202
Total operating
expenses 237,490 345,427 727,817 802,212
Operating loss (26,538) (134,142) (75,894) (170,684)
Interest expense 6,589 7,208 19,711 19,448
Other income 13,413 555 7,319 2,090
Equity in income
(losses) of foreign
joint ventures (973) (1,230) (1,127) (2,330)
Loss from continuing
operations before
income tax (benefit)
expense (20,687) (142,025) (89,413) (190,372)
Income tax (benefit)
expense (4,247) 55,560 (5,944) 84,230
Loss from continuing
operations (16,440) (197,585) (83,469) (274,602)
Loss from discontinued
operations (net of
income tax benefit
of $0) -- -- -- (534)
Net loss $(16,440) $(197,585) $(83,469) $(275,136)
Income (loss) per basic
and diluted share:
Loss from continuing
operations per share $(0.54) $(6.58) $(2.74) $(9.15)
Loss from discontinued
operations per share -- -- -- (0.02)
Net loss per share $(0.54) $(6.58) $(2.74) $(9.17)
Weighted average shares
used to compute income
(loss) per share:
Basic 30,583,930 30,009,214 30,474,393 29,997,591
Diluted 30,583,930 30,009,214 30,474,393 29,997,591
