Everlast Worldwide Inc. first quarter net revenues increased 24% to $12.4 million, compared to $10.0 million in the same period in 2006. Growth in net revenue resulted from a 30% increase in sporting goods sales to a record $9.0 million, the third consecutive quarter of more than 30% year-over-year sales growth.
The increase resulted from expanded distribution and continued strong sell-through for the Everlast brand. Net licensing revenues increased 11% to approximately $3.3 million vs. $3.0 million in the first quarter of 2006. The growth was driven by organic increases in licensing income by our worldwide licensees, particularly in the United Kingdom, South Korea, and Chile. This growth offset the termination of a European equipment licensee, who was not acting in accordance with our product quality and distribution standards. This licensee has since been replaced and shipping of equipment in Europe will resume in Q3 of this year.
In the first quarter of 2007, the Company's gross margin was 49.2%, compared with 44.5% in the first quarter a year ago. The increase in gross profit margin was achieved with an increase in revenues from the more highly profitable licensing business and 780 basis points improvement in sporting goods gross margins. The increase in sporting goods gross margins was due to a combination of higher initial margins on new products, logistical and operational efficiencies, and improvements in sourcing, benefiting from initiatives implemented in the second half of fiscal 2006.
First quarter operating income grew 53% to $2.2 million, or 17.9% of net revenues, versus the year-ago level of $1.5 million, or 14.6% of net revenues. This increase was primarily driven by higher revenues and improved gross profit margins, partially offset by planned increases in both marketing development initiatives and increased overhead costs within general and administrative expenses to support our Global Brand Integration.
Adjusted earnings per diluted share for the first quarter of 2007, adding back approximately $0.04 of non-cash expense associated with stock-based compensation, was $0.20 per diluted share, 43% increase over adjusted earnings of $0.14 per diluted share in 2006. The first quarter 2006 amount adds back approximately $0.02 of non-cash expense associated with stock-based compensation, and excludes the $0.52 non-recurring gain on the redemption of our Series A Preferred Stock and prepayment of related notes payable recorded in the first quarter of fiscal 2006. The EPS growth was achieved in spite of a 13% increase in diluted shares outstanding compared to the year ago period.
Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said “We are very proud of the record results we achieved for this first quarter. The 24% increase in net revenues and continued improvement in gross margins is enabling us to invest in our brand for both short-term and long-term growth to help us become the premier brand our consumers expect. Our recently concluded market research provided us with consumer perceptions of the brand, identified global market opportunities and enabled us to set forth a clear strategy for worldwide growth. We have established a clear, consistent and cohesive brand and product direction and we have the network of licensees to execute it. There is, however, the need for greater investment in product development, creative marketing executions, and direct-to-consumer business initiatives. We believe our aspiration to be a necessary part of the lives of active consumers worldwide who train, compete and live within our brand ethos of strength, dedication, individuality and authenticity can be met, achieving premier athletic brand status, with this investment into research and development of products and materials and marketing executions that can then be executed efficiently and effectively and provide significant profitable return by our strong team of 72 licensees.”
Mr. Horowitz continued, “To deploy this brand message and carry out our growth strategy, over the next year we will be implementing a Global Brand Integration. This integration will be achieved by an extensive global marketing and product development deployment. As part of this deployment, we are excited to introduce a refreshed Everlast logo, a global company icon, uniform and consistent worldwide packaging and an advertising campaign all centered around our new tag-line, “Greatness is Within”(TM). This marketing message will be communicated and tailored around our product deployment, targeted to capitalize on the growing consumer trends of product categories “Train, Compete, Live” within our sporting goods equipment, apparel and footwear product offerings. This strategy will allow us to maximize the global positioning of our brand, utilizing the strengths of training, competitive and athleisure and sportswear products that we have exhibited in select territories and select categories but never on a consistent global basis.
“In addition, we will be re-engineering our direct-to-consumer business, which includes e-commerce and catalogs, which we believe will be a significant revenue and profit driver in 2008 and beyond. This brand message and product assortment will be communicated via direct-to-consumer and at retail in Spring 2008 domestically and by Fall of 2008 worldwide.
“As we continue to execute on these initiatives, we believe we have a very scalable business platform to provide us the flexibility and strength to obtain the “premier” brand status. We believe this business platform and our business model provides us the growth drivers and opportunities which will give us the ability to invest in product and marketing development that will be executed by our existing and growing licensee base, enhance our direct-to-consumer business and provide us the flexibility to enter new markets through creative organizational structures that will collectively enhance our revenue and profitability for years to come.”
“And finally, today Everlast has a proven and deep executive management team to carry out these initiatives. I am pleased to announce we have further strengthened our management team with the addition of Mark Mackay as Senior Vice President Global Licensing. Mark's prior global experiences include extended tenures at Reebok, And 1 and Under Armour, where he helped grow their product assortments and revenues domestically and internationally within a wide variety of licensing, distribution and partnership relationships.”
The Company today reported that it has increased its guidance for fiscal 2007. The Company now expects to report net revenues in the range of $58 to $60 million versus its prior guidance of $56 to $58 million; EBITDA in the range of $11.9 to $12.4 million versus the prior range of $11.3 to $11.8 million; and now anticipate earnings per fully diluted share, adding back the expected $0.20 of non-cash expense for stock based compensation of between $1.00 and $1.04 per diluted share. This guidance incorporates the planned additional spending for the previously discussed deployment of the Global Brand Integration and re-engineering of our direct-to-consumer business. Our fully diluted shares are expected to be approximately 4.4 million shares.
