FGX International had net sales increase 5.4% to $66.2 million for the fourth quarter ended Jan. 3, 2009 as compared to $62.8 million in the fourth quarter of 2007. Net income increased to $6.8 million in the current period from $1.3 million in the fourth quarter of 2007. Earnings per diluted share increased to 31 cents in the fourth quarter of 2008 from 7 cents in the fourth quarter of 2007.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 27.5% to $18.1 million in the current period from $14.2 million in the fourth quarter of 2007.
Highlights for fiscal 2008 include:
For the full year ended Jan. 3, 2009, net sales increased 6.5% to $256.1 million in fiscal 2008 from $240.5 million in fiscal 2007. Net income increased to $17.0 million in fiscal 2008 from $4.7 million in fiscal 2007. Earnings per diluted share increased to 79 cents in fiscal 2008 from 29 cents in fiscal 2007, a 172.4% increase.
EBITDA increased 11.1% to $54.0 million in fiscal 2008 from $48.6 million in fiscal 2007.
Sales for non-prescription reading glasses were flat during the fourth quarter of 2008 compared to the fourth quarter of 2007, primarily due to the discontinuation of the company's opening price point program at Wal*Mart, offset by organic growth at existing customers. The increase in non-prescription reading glasses sales during fiscal 2008 from the corresponding period a year ago was due to a combination of organic growth and rollouts to new customers, partially offset by the discontinuation of the company's opening price point program at Wal*Mart in September 2008. Also, in 2007, the company benefited from a rollout to a major national retailer that was not anniversaried in 2008.
The increase in sales in the sunglasses and prescription frames segment for the fourth quarter of 2008 was largely due to a new sunglasses program shipped to a major customer and organic growth at existing customers. The company also benefited from approximately $2 million of sales by Dioptics Medical Products, Inc., which was acquired November 26, 2008. These factors, as well as higher sales related to a promotional program at another major customer, contributed to the fiscal 2008 growth.
Declines in the costume jewelry segment for the fourth quarter and fiscal 2008 were principally due to a loss of sales at a major customer and generally disappointing sell-through of the company's products at retail. The company is continuing its strategic review of this segment.
Sales in the company's international segment were down 18.0% for the fourth quarter and 6.0% for the year when compared to the corresponding year ago periods. On a constant currency basis, international sales increased 4.0% for the fourth quarter and declined 3.0% for fiscal 2008 when compared to the corresponding year ago periods. The decline for fiscal 2008 was principally due to a non-anniversaried reading glass roll-out in the UK in the first quarter of 2007.
A reconciliation of EBITDA and Free Cash Flow, which are non-GAAP measures, are included in the Consolidated Statements of Income and Other Selected Data, and related notes thereto, attached to this release. The company believes that non-GAAP measures are useful for an understanding of its ongoing business.
In the fourth quarter of 2008 and 2007, gross margin as a percentage of net sales was 56.8%. For fiscal 2008, gross margin as a percentage of net sales was 54.8% compared to 54.2% in the prior year. The gross margin increase for the year was principally due to a favorable sales mix compared to the corresponding period a year ago.
In the fourth quarter of 2008, operating income increased to $13.0 million from $9.5 million in the fourth quarter of 2007. For fiscal 2008, operating income increased to $34.3 million from $29.9 million in the comparable period for the prior year. The increase in operating income for the fourth quarter of 2008 was driven by increased sales and a non-anniversaried $2.5 million abandoned lease charge incurred during the fourth quarter of 2007. Fourth quarter 2008 operating results were partially offset by higher operating costs, principally fixture depreciation expense, freight costs and public company costs. The increase in operating income for fiscal 2008 was driven by higher sales, higher gross margins and a non-anniversaried $4.4 million abandoned lease charge incurred in fiscal 2007. This increase in operating income was partially offset by the same factors that adversely impacted the fourth quarter.
In the fourth quarter of 2008, interest expense decreased to $1.7 million from $7.3 million in the fourth quarter of 2007. For fiscal 2008, interest expense decreased to $6.4 million from $24.7 million in the comparable period for the prior year. These decreases in interest expense were driven by initial public offering proceeds which were used to reduce indebtedness in the fourth quarter of 2007, a non-anniversaried $2.8 million write off of deferred financing costs and a new debt facility entered into in December 2007 which carries lower interest rates.
Capital expenditures were $4.1 million in the fourth quarter of 2008 compared to $4.3 million in the fourth quarter of 2007 and $14.6 million in fiscal 2008 compared to $15.5 million in fiscal 2007. The decrease in fiscal 2008 was the result of a non-anniversaried capital investment made in the prior year period to support the rollout of a new non-prescription reading glasses and sunglasses program at a major customer.
Days sales outstanding improved to 62 days in the current quarter from 70 days in the fourth quarter of 2007 and improved to 76 days for fiscal 2008 from 85 days in fiscal 2007. This improvement was due to a continuing focus on working capital management.
Inventory days on hand improved to 113 days in the current quarter from 116 days in the fourth quarter of fiscal 2007 and improved to 108 days in fiscal 2008 from 112 days in fiscal 2007, excluding the effect of the Dioptics acquisition. This improvement was due to a continuing focus on working capital management.
Stock compensation expense was $0.7 million, or 2 cents per diluted share, in the current quarter compared to $0.4 million, or 1 cent per diluted share, in the fourth quarter of 2007. Stock compensation expense was $2.4 million, or 7 cents per diluted share, in fiscal 2008 compared to $0.9 million, or 3 cents per diluted share, in fiscal 2007.
During the fourth quarter of 2008, the company did not repurchase any additional shares under its stock buyback program. For fiscal 2008, the company repurchased a total of 133,788 of its outstanding ordinary shares at an average price per share of $11.07 under its stock buyback program. The company has approximately $10.5 million of stock buyback authorization remaining in the program, which has been extended through Feb. 18, 2010.
Liquidity and Capital Resources
In fiscal 2008 the company generated $39.4 million of Free Cash Flow. As of year end, the company had $37.5 million of availability under its revolving credit facility, which expires in 2012. The company plans to continue to use its Free Cash Flow to reduce indebtedness and make accretive acquisitions. The company presently believes it has adequate liquidity and capital resources to operate its business as currently conducted.
For the full year 2009 the company currently expects net sales of $283 to $295 million, earnings per diluted share of 98 cents – $1.10 and EBITDA of $59 -$62 million.
For the first quarter of 2009, the ccurrently expects net sales of $57-$62 million, earnings per diluted share of -2 cents to 2 cents and EBITDA of $5-$7 million. Earnings are expected to be lower during the first quarter of 2009 compared to the corresponding period of 2008 principally as a result of the costs associated with the Company's reading glasses advertising campaign mentioned above. These costs are expected to be approximately $3.0 million higher in the first quarter of 2009 compared to the first quarter of 2008.
The above outlook excludes any unforeseen charges or events including further deterioration of general economic conditions and includes anticipated results of the costume jewelry segment. As mentioned above, the Company is continuing its strategic review of the jewelry segment and may incur charges related to the outcome of that review.
CEO Alec Taylor concluded, “We are cautiously optimistic about 2009, although predicting financial results in the current macro economic environment is very difficult. We are confident about the soundness of our business model and strategy, and will continue to invest in our brands and business which we believe will result in the creation of long-term shareholder value.”
FGX INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND OTHER SELECTED DATA
(Unaudited, in thousands, except per share data)
Reconciliation of Results "As Reported" in accordance with GAAP to
Results "Excluding Adjustments (2), a non GAAP
Three Months Ended
January 3, 2009 December 29, 2007
As As Excluding
Reported Reported Adjustments(3) Adjustments
Non-prescription Reading Glasses $ 31,706 $ 31,789 $ - $ 31,789
Sunglasses and Prescription Frames 24,772 16,510 152 16,662
Costume Jewelry 3,676 7,128 - 7,128
International 6,055 7,354 - 7,354
Total net sales 66,209 62,781 152 62,933
Cost of sales 28,627 27,145 27 27,172
Gross profit 37,582 35,636 125 35,761
Selling expenses 17,145 15,929 (71 ) 15,858
General and administrative expenses 6,013 6,150 - 6,150
Amortization of acquired intangibles 1,425 1,543 - 1,543
Abandoned lease charge - 2,542 (2,542 ) -
Total operating expenses 24,583 26,164 (2,613 ) 23,551
Operating income 12,999 9,472 2,738 12,210
Interest expense, net 1,656 7,337 (2,780 ) 4,557
Other income (expense), net 52 (63 ) - (63 )
Income before income taxes and minority interest 11,395 2,072 5,518 7,590
Income tax expense 4,403 621 2,097 2,718
Income before minority interest 6,992 1,451 3,421 4,872
Minority interest expense 157 142 - 142
Net income $ 6,835 $ 1,309 $ 3,421 $ 4,730
Basic earnings per share $ 0.32 $ 0.07 $ 0.24
Diluted earnings per share $ 0.31 $ 0.07 $ 0.24
Weighted average shares outstanding:
Basic 21,579 19,473 19,473
Diluted 21,700 19,652 19,652
Capital expenditures $ 4,072 $ 4,252 $ 4,252
See accompanying Notes to Consolidated Statements of Income and
Other Selected Data.