Eddie Bauer Holdings, Inc. second quarter revenues were $225.7 million, compared to $243.8 million in the second quarter of 2005. Total revenues for the second quarter of 2006 included net merchandise sales of $211.6 million, shipping revenues of $8.6 million, licensing royalty revenues of $3.8 million, royalty revenues from foreign joint ventures of $1.6 million, and other revenues of $0.1 million. In the second quarter of 2005, total revenues included net merchandise sales of $229.4 million, shipping revenues of $9.3 million, licensing royalty revenues of $3.3 million, royalty revenues from foreign joint ventures of $1.5 million, and other revenues of $0.3 million.
Net merchandise sales for the second quarter of 2006 included $153.8 million of sales from the Company’s retail and outlet stores and $57.8 million of sales from its direct channel, which includes sales from its catalogs and websites. This compares to $169.8 million of sales from the Company’s retail and outlet stores and $59.6 million of sales from its direct channel in the year-ago second quarter. Comparable store sales for the second quarter of 2006 declined by 5.9%. Comparable store sales include net sales from retail and outlet stores that have been open for one complete fiscal year.
Fabian Mansson, Chief Executive Officer, commented, “While we are disappointed with our second quarter performance, we are looking forward to the upcoming introduction of our new Fall product line in our stores, in our catalogs and online. The collection has been revamped to be more consistent with our core customers preferences and Eddie Bauer’s heritage as an outdoor lifestyle brand. While we believe it will take some time to realize the full impact of the changes we have been making, and the consumer environment remains uncertain, we believe there are a number of opportunities ahead to leverage the strength and unique positioning of the Eddie Bauer brand.”
Gross margin for the three months ended July 1, 2006 was $79.7 million, representing a decrease of $19.3 million from the gross margin for the three months ended July 2, 2005. Gross margin percentage for the second quarter of 2006 declined to 37.7%, down from 43.1% for the second quarter of 2005. The principal factors impacting the decline in gross margin percentage for second quarter 2006 versus that of the comparable quarter in the prior year were decreased sales that resulted in higher occupancy costs as a percentage of net merchandise sales, higher levels of markdowns taken in order to drive merchandise sales, as well as amortization of intangible assets that the Company recorded upon its emergence from bankruptcy and was not recorded in the prior year quarter.
The Company’s net loss for the second quarter of 2006 was $42.0 million, or a loss of $1.40 per diluted share, compared to net income of $69.5 million in the second quarter of 2005. The net income of $69.5 million in the second quarter of 2005 included a pre-tax gain of $107.6 million related to the Company’s emergence from bankruptcy and its required adoption of fresh start accounting. Per share amounts have not been reported for the second quarter of 2005, since the Company was a wholly-owned subsidiary of Spiegel, Inc. for the majority of the year-ago quarter and there were no shares outstanding for the combined entity. The Company emerged as a stand-alone entity on June 21, 2005, when Spiegel’s Chapter 11 Plan of Reorganization was declared effective and 30 million shares of common stock of Eddie Bauer Holdings were distributed to satisfy pre-petition claims.
Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA(1), for the second quarter of 2006 was $10.6 million compared to $30.1 million for the second quarter of 2005 when excluding the Company’s $7.9 million of reorganization expenses and $107.6 million gain recorded upon its emergence from bankruptcy. EBITDA is a non-GAAP financial measure that the Company believes is an important metric because it is a key factor in how it measures its operating performance. See Unaudited Supplemental Financial Information for a reconciliation of EBITDA to its most comparable GAAP measure income (loss) from continuing operations before reorganization items and income tax expense. In addition, the Company incurred pre-tax non-cash stock-based compensation expense of $3.1 million in the second quarter of 2006. No stock- based compensation expense was incurred during the second quarter of 2005 because the Company did not grant any stock-based awards until the fourth quarter of 2005.
As previously reported, following a disappointing Fall/Holiday 2005, and Spring 2006 season, the Company has moved forward with a series of steps to improve performance, including modifying its merchandise assortments to better meet the needs of its core customers. Due to the long lead times in its business, the Company said it expects to realize the impact of these changes as new merchandise arrives in stores in the third and fourth quarter.
The Company continues to proceed with the process of listing its shares on a national exchange. On May 1, 2006, the Company filed its amended Form 10 with the Securities and Exchange Commission (SEC), and on June 30, 2006, the Form 10 became effective. As a result, Eddie Bauer Holdings, Inc. is now a reporting Company under the Securities Exchange Act of 1934 as amended. The Company is working to conclude the SEC review and its Nasdaq listing application is currently under review.
For the six months ended July 1, 2006, total revenues were $420.2 million, compared to $465.7 million in the same period last year. Total revenues for the six-month period included net merchandise sales of $392.2 million, shipping revenues of $16.7 million, licensing royalty revenues of $7.8 million, royalty revenues from foreign joint ventures of $3.2 million, and other revenues of $0.3 million. In the first half of 2005, total revenues included net merchandise sales of $436.0 million, shipping revenues of $18.6 million, licensing royalty revenues of $7.5 million, royalty revenues from foreign joint ventures of $3.0 million, and other revenues of $0.6 million.
Net merchandise sales for the six-month period of 2006 included $279.7 million of sales from the Company’s retail and outlet stores and $112.5 million of sales from its direct channel. This compares to $313.5 million of sales from the Company’s retail and outlet stores and $122.4 million of sales from its direct channel in the same period last year. Comparable store sales for the first half of 2006 declined by 7.7%.
Gross margin for the six months ended July 1, 2006 was $128.3 million, representing a decrease of $48.2 million from the gross margin for the six months ended July 2, 2005. Gross margin percentage for the first half of 2006 declined to 32.7%, down from a gross margin percentage of 40.5% for the first half of 2005. The decline in gross margin percentage for the six-month period versus that of the prior year period was primarily the result of higher occupancy costs as a percentage of net merchandise sales, higher levels of markdowns taken in order to drive merchandise sales, as well as amortization of intangible assets that the Company recorded upon its emergence from bankruptcy and was not recorded in the prior year quarter.
The Company’s net loss for the first half of 2006 was $77.6 million, or a loss of $2.59 per diluted share, compared to net income of $60.9 million in the first half of 2005. The net income of $60.9 million in the first half of 2005 included a pre-tax gain of $107.6 million related to the Company’s emergence from bankruptcy and its required adoption of fresh start accounting.
Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the six- month period of 2006 was a loss of $8.9 million compared to income of $37.0 million for the same period last year when excluding the Company’s $13.7 million of reorganization expenses and $107.6 million gain recorded upon its emergence from bankruptcy. In addition, the Company incurred pre-tax non-cash stock-based compensation expense of $6.4 million in the first half of 2006. No stock-based compensation expense was incurred during the first half of 2005 as the Company did not grant any stock-based awards until the fourth quarter of 2005.
As of July 1, 2006, the Company operated 375 retail and outlet stores in total, consisting of 267 retail stores and 108 outlet stores. The Company opened three retail stores and one outlet store during the second quarter and closed one retail and one outlet store. This compares to a total of 382 retail and outlet stores as of July 2, 2005, consisting of 279 retail stores and 103 outlet stores.
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
Successor Predecessor Successor Predecessor
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 1, 2006 July 2, 2005 July 1, 2006 July 2, 2005
($ in thousands, except earnings per share)
(Unaudited) (Unaudited) (Unaudited) (Audited)
Net sales and
other revenues $225,742 $243,793 $420,243 $465,723
Costs of sales,
including buying
and occupancy 131,930 130,438 263,890 259,536
Selling, general
and administrative
expenses 96,574 92,487 192,895 185,225
Total operating
expenses 228,504 222,925 456,785 444,761
Operating income
(loss) (2,762) 20,868 (36,542) 20,962
Interest expense (6,492) (699) (12,240) (761)
Other income 569 - 1,535 -
Equity in earnings
(losses) of foreign
joint ventures (704) 1,205 (1,100) (95)
Income (loss) from
continuing
operations before
reorganization items
and income tax
expense (9,389) 21,374 (48,347) 20,106
Gain on discharge
of liabilities - (107,559) - (107,559)
Reorganization costs
and expenses, net - 7,871 - 13,686
Income (loss) from
continuing
operations before
income tax expense (9,389) 121,062 (48,347) 113,979
Income tax expense 32,591 50,918 28,670 50,402
Income (loss) from
continuing
operations (41,980) 70,144 (77,017) 63,577
Loss from
discontinued
operations (net
of income tax
expense (benefit)
of $0, $(386), $0
and $(1,686),
respectively) - (609) (534) (2,661)
Net income (loss) $(41,980) $69,535 $(77,551) $60,916
Income (loss) per
basic and diluted
share:
Loss from
continuing
operations per
share $(1.40) n/a $(2.57) n/a
Loss from
discontinued
operations
per share - n/a (0.02) n/a
Net loss per share (1.40) n/a (2.59) n/a
Weighted average
shares used to
compute income
(loss) per share:
Basic 29,991,684 n/a 29,991,684 n/a
Diluted 29,991,684 n/a 29,991,684 n/a
