Eddie Bauer Holdings, Inc. reported a Q1 net loss of $44.5 million, a 25.2% fall from $19.3 million a year ago. The operating loss increased by 11.0%, or $2.8 million to $28.2 million in the quarter, primarily due to lower net merchandise sales and gross margins, which were substantially offset by increased savings in selling, general and administrative (SG&A) expenses.
The loss before interest expense, income taxes, depreciation and amortization (EBITDA), excluding the impacts associated with the amendment of the company's senior term loan and severance charges in the first quarter, increased by $7.0 million to $19.5 million.
“The first quarter was a difficult one, as the sharp downturn in the economy took its toll on our sales. We continued to focus on cost cutting and cash flow management, which helped mitigate the impact of lower sales,” said Neil Fiske, President and Chief Executive Officer.
FIRST QUARTER HIGHLIGHTS
Revenue
Total revenues for the quarter decreased by $33.4 million to $179.8 million, compared to $213.2 million in the first quarter of 2008. Combined comparable store sales fell 11.3% when excluding the effect of Canadian exchange rates. Comparable store sales continue to be impacted by the general economic conditions and reduced consumer retail spending. Direct revenue was down 10.7%. Catalog circulation pages were down approximately 22.6% for the quarter, while catalog productivity was up approximately 11.2% on a more targeted mailing strategy.
The company operated 251 retail stores and 119 outlet stores at the end of the first quarter of 2009, compared with 247 and 118 stores, respectively, in 2008.
Gross Margins
Gross margin percentage declined to 24.5% in the first quarter from 27.6% in the year-ago quarter. Gross margin dollars decreased by $13.3 million to $41.4 million in the first quarter of 2009 compared to $54.7 million in the prior year quarter. The decreased gross margin percentage primarily resulted from a lower net merchandise sales base across which to spread fixed buying and occupancy costs.
Selling, General and Administrative (SG&A)
SG&A decreased by $14.7 million (15.4%) in the first quarter of 2009 and included approximately $1.2 million in severance costs associated with the January 2009 193-person reduction in workforce and a reduction in previously recorded severance amounts.
EBITDA and Operating Loss
EBITDA loss increased by $7.0 million to a $19.5 million loss for the quarter when excluding the impacts associated with the April 2009 amendment of the company's senior term loan and severance charges. The term loan impacts included a $10.3 million non-cash loss on the fair value of the company's hedge on a portion of the senior term loan interest rate. The fair value accounting adjustment of the hedge does not affect the company's cash flow or operating profit. “Loss before Income Tax Benefit” (shown below) is considered the comparable GAAP measure. (See the attached table, “Reconciliation of Non-GAAP Financial Measures,” for a more complete description.)
Operating loss was $28.2 million compared to $25.4 million in the year-ago period. The increased operating loss was primarily driven by lower net merchandise sales and gross margins, offset by a $14.7 million decrease in SG&A expenses as compared to the prior year quarter.
Net Loss
Net loss for the first quarter increased by $25.2 million to $44.5 million, or $1.44 per share. The increased net loss was primarily attributable to two non-cash items: a non-cash $10.3 million accounting loss on the senior term loan interest rate hedge; and a lower non-cash income tax benefit of $11.0 million.
Other Financial Highlights
Inventories: Decreased to $139.0 million at 2009 first quarter end from $148.2 million a year earlier, a decrease of $9.2 million or 6.2% or 8.9% on a per store basis.
Senior Term Loan: Principal amounts owed under the senior term loan decreased to $187.8 million at 2009 first quarter end from $194.5 million a year earlier, a reduction of $6.7 million. Reductions to the outstanding balance included $16.3 million of mandatory and excess cash flow payments, offset by a principal balance increase of $9.6 million in non-cash payment-in-kind fees resulting from the first quarter 2009 amendment. The senior term loan is recorded at $166.5 million on the company's balance sheet, which is net of a $21.3 million discount to reflect the fair value of the amended loan and common stock warrants to be issued to the lenders. A deferred cash amendment fee of $3.8 million is due on November 30, 2009.
Short Term Borrowings: Our $150 million revolving line of credit increased to $31.9 million at the end of the first quarter of 2009 from $9.3 million at first quarter end 2008, an increase of $22.6 million primarily due to a $14.7 million mandatory excess cash flow payment to the term loan and the timing of funds clearing for future period expenses during the quarter as compared to the prior year.
Convertible Notes: Principal amounts owed under the convertible notes remained unchanged at $75 million. The company was required to adopt a new accounting policy in the first quarter which required that the notes be split between the fair value of the debt without conversion features, with the residual carrying amount recorded within equity. Therefore, the notes are recorded at $21.4 million, net of a discount of $53.6 million as of the end of the quarter. Additionally, because the notes are no longer required to be settled in cash as of the beginning of fiscal 2009, the company is no longer required to record the derivative liability associated with the conversion features at market value.
Net Capital Expenditures: Decreased by $1.6 million to $1.5 million for the first three months of 2009 from $3.1 million for the comparable period in 2008, as a result of fewer store openings and decreased remodeling costs in 2009.
Cash Taxes: Decreased by $4.1 million to $0.5 million for the first quarter of 2009 from $4.6 million for the prior year comparable period, primarily due to lower Canadian tax payments.
