Everlast Worldwide Inc. reported revenues for the second quarter increased 24% to $12.2 million,
compared to $9.8 million in the same period in 2006. Growth in net
revenue resulted from a 28% increase in sporting goods sales to a
record $8.7 million. The increase resulted from expanded distribution
and continued strong sell-through. Net licensing revenues increased 15%
to approximately $3.5 million vs. $3.0 million in the second quarter of
2006. The growth was driven by organic increases in licensing income by
our worldwide licensees, particularly in South Korea, Chile and in
select categories in the United States.
In the second quarter of 2007, the Company's gross margin was 54.1%,
compared with 45.7% in the second quarter a year ago. The improvement
was generated by a 14.2 percent 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 since the second half of fiscal 2006. This was
slightly offset by the revenue mix shift toward equipment.
Second quarter operating income grew 36% to $2.1 million, or 17.5% of
net revenues, versus the year-ago level of $1.6 million, or 15.9% 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.
During the second quarter of 2007, the Company recorded a $4.2 million
pre-tax non-recurring merger related charge related to a merger
agreement, as amended, signed on June 28, 2007 with Brands Holdings
Limited, a private company limited by shares incorporated in England
and Wales, EWI Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Brands Holdings Limited (“Brand Holdings”) The $4.2
million pre-tax charge is made up of approximately $470,000 in costs
associated with a follow-on common stock offering that we have agreed
to cancel as a condition to the closing of this merger, $745,000 in
transaction costs related to the pending merger and $3.0 million
termination fee incurred as a result of the termination of the Hidary
Group Acquisition LLC merger agreement signed on June 1, 2007.
Adjusted earnings per diluted share for the second quarter of 2007,
adding back approximately $0.63 of non-recurring merger related
transaction costs and $0.05 of non-cash expense associated with
stock-based compensation, was $0.21 per diluted share, a 62% increase
over adjusted earnings of $0.13 per diluted share in 2006. The second
quarter 2006 amount adds back approximately $0.03 of non-cash expense
associated with stock-based compensation. Reported basic and diluted
loss per share for the second quarter of 2007 was $(0.46) compared with
earnings per diluted share of $0.10 in second quarter of 2006.
Seth Horowitz, Chairman, President and Chief Executive of Everlast
Worldwide Inc., said “We are very proud of the strong results we
achieved for the second 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 reinforce the
premier brand our consumers have come to expect. Our sporting goods
business continues to see strong sell-ins and sell-through, as
evidenced by the 28% quarter over quarter increase, which has been
consistent with the 25% plus percent year-over-year quarterly growth
experienced in the last four sequential quarters. The additional volume
and the significant reductions in sporting goods equipment product and
logistical costs are enabling us to achieve significant improvements in
our sporting goods gross margin, as demonstrated by the 14.2 percent
improvement in the second quarter margins over the prior year quarter.
Also strong, our licensing business grew at a 15% rate this quarter
fueled by strong wholesale sales in South Korea, Chile, and licensed
categories in North America.”
Mr. Horowitz continued, “We continue to implement our Global Brand
Integration, which is benefiting our entire business. We recently
launched a U.S. trade print media campaign centered around our new
tag-line, “Greatness is Within”(TM) which also includes our refreshed
Everlast logo and global company icon. This marketing message has been
and will be communicated and tailored around our product deployment and
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 enables 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 and now
aimed to achieve on a global basis. We have recently implemented this
strategy by partnering with major sporting goods stores across the U.S.
to build out Everlast concept and focus shops, including Dicks Sporting
Goods stores, The Sports Authority stores and Big 5 Sporting Goods
stores. ”
<pre>
EVERLAST WORLDWIDE INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months
Ended
June
30,
June 30,
———————— ————————
2007
2006
2007 2006
———— ———– ———— ———–
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net
sales
$8,674,000 $6,798,000 $17,723,000 $13,765,000
Net license revenues 3,482,000 3,039,000 6,809,000 6,042,000
———— ———– ———— ———–
Net
revenues
12,156,000 9,837,000 24,532,000 19,807,000
———— ———– ———— ———–
Cost of goods sold 5,585,000 5,340,000 11,878,000 10,869,000
———— ———– ———— ———–
Gross
profit
6,571,000 4,497,000 12,654,000
8,938,000
Operating expenses:
Selling and
shipping
2,259,000 1,320,000 4,327,000
2,886,000
General and
administrative
1,983,000 1,476,000 3,618,000
2,813,000
Stock-based
compensation
202,000 135,000
363,000 219,000
———— ———– ———— ———–
4,444,000 2,931,000 8,308,000
5,918,000
———— ———– ———— ———–
Operating income
2,127,000 1,566,000 4,346,000
3,020,000
———— ———– ———— ———–
Other income
(expense):
Non-recurring
merger related
costs
(4,215,000)
–
(4,215,000)
–
Gain on early
extinguishment of
preferred stock
and prepayment of
notes payable,
net
–
–
– 2,032,000
Interest expense
and financing
costs,
net
(848,000) (823,000) (1,761,000) (1,482,000)
———— ———– ———— ———–
(5,063,000) (823,000)
(5,976,000) 550,000
———— ———– ———— ———–
(Loss) income before
(benefit) provision
for income taxes (2, 936,000) 743,000 (1,630,000) 3,570,000
(Benefit) provision
for income taxes
(1,066,000) 341,000
(494,000) 684,000
———— ———– ———— ———–
Net (loss) income ($1,870,000) $402,000 ($1,136,000) $2,886,000
============ =========== ============ ===========
Basic weighted
average common
shares outstanding 4,078,000
3,883,000 4,072,000 3,750,000
============ =========== ============ ===========
Diluted weighted
average common
shares outstanding 4,078,000
4,157,000 4,072,000 4,033,000
============ =========== ============ ===========
Net basic (loss)
earnings per share
($0.46)
$0.10
($0.28) $0.77
============ =========== ============ ===========
Net diluted (loss)
earnings per share
($0.46)
$0.10
($0.28) $0.72
============ =========== ============ ===========</pre>
