Everlast Worldwide Inc. fiscal third quarter net revenues increased 27% to $13.4 million, as compared to $10.6 million in the same period in 2005. Net licensing revenues for the third quarter of 2006 were $3.0 million, as compared to $2.8 million in the same period a year ago.
As was announced in the first quarter, licensing revenues have been impacted by 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 third quarter were $10.5 million, a record, as compared to $7.8 million in 2005, an increase of 35%. The increase was the result of organic growth, driven by new products, new channels of distribution and strong consumer awareness of our brand as a result of the airing of Season 2 of The Contender, which premiered July 18, 2006.
Gross margin for the quarter improved to 42.7%, compared with 42.0% in the third quarter a year ago. The higher gross profit margin was achieved from improved margins on sporting goods equipment due to some operational efficiencies and product cost reductions.
The Company achieved a record 29% increase in operating income from continuing operations to $2.2 million, versus the year-ago level of $1.7 million. The increase in operating income resulted from improved gross margins. Operating expenses, as a percentage of net revenues, remained flat, at approximately 26% of net revenues as the Company incurred and anticipated higher marketing and advertising costs associated with Season 2 of The Contender.
Adjusted earnings per diluted share, excluding the three cent effects of stock based compensation, and six cents effect of warrant issuance costs, for the third quarter of fiscal 2006 was 25 cents per diluted share, as compared to a net income from continuing operations of 16 cents per diluted share, in the 2005 comparable period. The Company believes that this is a more appropriate comparison as stock compensation and warrant costs were not included in the third quarter year-ago calculation.
Seth Horowitz, Chairman, President and Chief Executive of Everlast Worldwide Inc., said, “We are thrilled to be able to report record results from continuing operations this quarter. Everlast clearly has a tremendous amount of momentum, and we feel very good about the overall direction of the brand. We're seeing growth across all aspects of our business, starting with our base sporting goods segment. Participation continues to rise in boxing and mixed martial arts, and Everlast is uniquely positioned to benefit from the trend. We're constantly adding innovation to our sporting goods and working with our licensees to capitalize on the strength of the Everlast brand.”
Mr. Horowitz continued, “the Company is reiterating the following financial guidance for fiscal year 2006, although results are expected to be towards the high end of the following ranges:
Net revenues ranging between $46 to $48.5 million
EBITDA (excluding the effects of non-cash equity awards) ranging between $8.7 to $9.3 million
Diluted earnings per share (excluding the effects of stock-based compensation expense) between $0.68 and $0.73″
“We are also introducing guidance for 2007, as follows:
Net revenues ranging between $53 to $55 million
EBITDA (excluding the effects of non-cash equity awards) ranging between $10.4 to $10.8 million
Diluted earnings per share between $0.93 and $0.98, which excludes the impact of about $0.20 per share in stock based compensation expenses.”
EVERLAST WORLDWIDE INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2006 2005 2006 2005
------------ ----------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $10,450,000 $7,753,000 $24,215,000 $20,290,000
Net license revenues 2,964,000 2,807,000 9,006,000 8,845,000
------------ ----------- ------------ ------------
Net revenues 13,414,000 10,560,000 33,221,000 29,135,000
------------ ----------- ------------ ------------
Cost of goods sold 7,691,000 6,125,000 18,560,000 16,345,000
------------ ----------- ------------ ------------
Gross profit 5,723,000 4,435,000 14,661,000 12,790,000
Operating expenses:
Selling and
shipping 1,848,000 1,086,000 4,734,000 3,443,0008
General and
administrative 1,353,000 1,444,000 4,166,000 4,711,000
Restructuring and
non-recurring
charges - - - 273,000
Stock-based
compensation and
costs in
connection with
warrant issuance,
net 357,000 - 576,000 182,000
Amortization - 228,000 - 684,000
------------ ----------- ------------ ------------
3,558,000 2,758,000 9,476,000 9,293,000
------------ ----------- ------------ ------------
Income from
continuing
operations 2,165,000 1,677,000 5,185,000 3,497,000
------------ ----------- ------------ ------------
Other income
(expense):
Gain on early
extinguishment of
preferred stock
and prepayment of
notes payable,
net - - 2,032,000 -
Interest expense
and financing
costs (893,000) (554,000) (2,382,000) (1,631,000)
Investment income 4,000 6,000 11,000 17,000
------------ ----------- ------------ ------------
(889,000) (548,000) (339,000) (1,614,000)
------------ ----------- ------------ ------------
Income before
provision for
income taxes from
continuing
operations 1,276,000 1,129,000 4,846,000 1,883,000
Provision for income
taxes 587,000 456,000 1,271,000 678,000
------------ ----------- ------------ ------------
Net income from
continuing
operations $689,000 $673,000 $3,575,000 $1,205,000
============ =========== ============ ============
Loss from
discontinued
components, net of
tax - (498,000) - (1,720,000)
------------ ----------- ------------ ------------
Net income (loss)
available to common
stockholders $689,000 $175,000 $3,575,000 ($515,000)
============ =========== ============ ============
Basic weighted
average common
shares outstanding 3,912,216 3,385,858 3,804,488 3,282,294
============ =========== ============ ============
Diluted weighted
average common
shares outstanding 4,179,959 4,114,563 4,115,573 3,848,282
============ =========== ============ ============
Basic earnings per
share from
continuing
operations $0.18 $0.20 $0.94 $0.37
============ =========== ============ ============
Diluted earnings per
share from
continuing
operations $0.16 $0.16 $0.87 $0.31
============ =========== ============ ============
Basic loss per share
from discontinued
component - ($0.15) - ($0.52)
============ =========== ============ ============
Diluted loss per
share from
discontinued
component - ($0.12) - ($0.45)
============ =========== ============ ============
Net basic earnings
(loss) per share $0.18 $0.05 $0.94 ($0.15)
============ =========== ============ ============
Net diluted earnings
(loss) per share $0.16 $0.04 $0.87 ($0.14)
============ =========== ============ ============
