Everlast Worldwide Inc. second quarter net revenues were $9.8 million, as compared to $10.3 million in the same period in 2005. Net licensing revenues for the second quarter of 2006 were $3.0 million, as compared to $2.9 million in the same period a year ago.
As announced in the first quarter, licensing revenues have been impacted from the Company’s decision not to renew its previous footwear license as well as an increase in licensing commissions resulting from the litigation settlement which requires the Company to pay commissions to a former agent of Everlast during 2006. These two factors negatively impacted licensing revenues in the second quarter by approximately $425,000. Revenues from sporting goods for the second quarter were $6.8 million as compared to $7.3 million in 2005. The slight decline was the result of a difficult comparison against the year-ago quarter, which was unusually strong as a result of the airing of season 1 of The Contender, which premiered March 2005. Season 2 of The Contender premiered on July 18, 2006, during the Company’s fiscal third quarter.
Gross margin for the quarter improved 330 basis points to 45.7%, compared with 42.4% in the second quarter a year ago. The higher gross profit margin was achieved from an increased mix of licensing revenues as well as improved margin on sporting goods equipment due to some operational efficiencies as well as production cost reductions.
The Company achieved a 53% increase in operating income from continuing operations to approximately $1.6 million versus the year-ago level of approximately $1.0 million. The increase in operating income resulted from improved gross margins and a reduction in operating expenses, which improved by 260 basis points to 29.8% of sales compared with 32.4% of sales in the prior year’s quarter. The operating expense improvement was primarily achieved by effective cost controls as well as a reduction in amortization expense. As was disclosed in the Company’s first quarter 2006 financial results, the Company changed its accounting for the amortization of intangible assets and is no longer amortizing its trademark by $228,000 per quarter, based on the assessment that the Everlast trademark has an indefinite life.
Adjusted earnings per diluted share, excluding the 3 cent effects of stock based compensation, for the second quarter of fiscal 2006 was 13 cents per diluted share, as compared to a net income from continuing operations of 8 cents per diluted share, in the 2005 comparable period. The Company believes that this is a more appropriate comparison as stock compensation costs were not included in the year-ago calculation.
Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said “We are making excellent progress with our strategies to build our global brand identity, enhance our margins, and improve our working capital usage. This is clearly evident in our substantial profitability improvement for the second quarter. As a result of our success, we believe that we can sustain strong rates of growth for both sales and earnings for the foreseeable future. We have effectively controlled costs in both our corporate and our wholesale infrastructure, instituting lean manufacturing processes, and are achieving economies of scale as we grow our sporting goods business. Although our licensing revenues were affected by our decision to end sales of footwear with Footstar/Meldisco, we are excited to have reached a deal for men’s, women’s and kids athletic and casual footwear in the U.S. and Canada with E.S. Originals, Inc., a company that currently has a $1 billion retail footwear business. E.S. Originals will distribute the Everlast branded products beginning in the second quarter of 2007 to sporting goods, athletic footwear and department stores in the U.S. and Canada. Not only will this prove to be a significant category, but our distribution for this important product category is now properly aligned with the global brand position.”
Mr. Horowitz continued, “At the annual shareholder’s meeting held in June, we committed to building a better audience in the financial community. As part of this process, we have commenced providing financial guidance. Thus, the Company is prudently forecasting the following financial guidance for fiscal year 2006:
Net revenues ranging between $46 to $48.5 million
EBITDA (excluding the effects of non-cash equity awards) ranging between $8.7 to $9.2 million
Diluted earnings per share (excluding the effects of non-cash equity awards) between $0.68 and $0.73″
EVERLAST WORLDWIDE INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
2006 2005 2006 2005
---------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $6,798,000 $ 7,313,000 $13,765,000 $12,537,000
Net license revenues 3,039,000 2,938,000 6,042,000 6,038,000
---------- ----------- ----------- -----------
Net revenues 9,837,000 10,251,000 19,807,000 18,575,000
---------- ----------- ----------- -----------
Cost of goods sold 5,340,000 5,900,000 10,869,000 10,220,000
---------- ----------- ----------- -----------
Gross profit 4,497,000 4,351,000 8,938,000 8,355,000
Operating expenses:
Selling and
shipping 1,320,000 1,152,000 2,886,000 2,357,0008
General and
administrative 1,476,000 1,671,000 2,813,000 3,267,000
Restructuring
and non-
recurring
charges - 273,000 - 273,000
Stock-based
compensation and
costs in
connection with
warrant issuance 135,000 - 219,000 182,000
Amortization - 228,000 - 456,000
---------- ----------- ----------- -----------
2,931,000 3,324,000 5,918,000 6,535,000
---------- ----------- ----------- -----------
Income from
continuing
operations 1,566,000 1,027,000 3,020,000 1,820,000
---------- ----------- ----------- -----------
Other income
(expense):
Gain on early
extinguishment of
preferred stock
and prepayment of
notes payable,
net - - 2,032,000 -
Interest expense
and financing
costs (826,000) (523,000) (1,494,000) (1,077,000)
Investment income 3,000 5,000 12,000 11,000
---------- ----------- ----------- -----------
(823,000) (518,000) (550,000) (1,066,000)
---------- ----------- ----------- -----------
Income before
provision for
income taxes from
continuing
operations 743,000 509,000 3,570,000 754,000
Provision (benefit)
for income taxes 341,000 203,000 684,000 222,000
---------- ----------- ----------- -----------
Net income from
continuing
operations $ 402,000 $ 306,000 $ 2,886,000 $ 532,000
========== =========== =========== ===========
Loss from
discontinued
components, net of
tax - (902,000) - (1,221,000)
---------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders $ 402,000 ($596,000) $ 2,886,000 ($689,000)
========== =========== =========== ===========
Basic earnings per
share from
continuing
operations $ 0.10 $ 0.09 $ 0.77 $ 0.16
========== =========== =========== ===========
Diluted earnings
per share from
continuing
operations $ 0.10 $ 0.08 $ 0.72 $ 0.14
========== =========== =========== ===========
Basic loss per share
from discontinued
component - ($0.27) - ($0.38)
========== =========== =========== ===========
Diluted loss per
share from
discontinued
component - ($0.24) - ($0.33)
========== =========== =========== ===========
Net basic earnings
(loss) per share $ 0.10 ($0.18) $ 0.77 ($0.22)
========== =========== =========== ===========
Net diluted earnings
(loss) per share $ 0.10 ($0.16) $ 0.72 ($0.19)
========== =========== =========== ===========
EBITDA (Operating
earnings excluding
certain non-cash
and non-recurring
costs) $1,885,000 $ 1,692,000 $ 3,583,000 $ 3,040,000
========== =========== =========== ===========
