FGX Intl. Sees Q2 Profits Climb

Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations increased 24% to $15.6 million compared to $12.6 million in the second quarter of 2008.

By segment, non-prescription Reading Glasses grew 6% to  $33.2 million. Sunglasses & Prescription Frames climbed 37% to $35.2 million. International sales slid 32% to $6.6 million.

FGX's makes glasses under Foster Grant, Magnivision, Angel, Gargoyles, Anarchy, SolarShield and PolarEyes.  FGXI also holds licenses for brands such as Ironman, Levi Strauss, Body Glove and C9 by Champion.

CEO Alec Taylor commented, �We are pleased with the strong growth in revenue and earnings from continuing operations achieved in the second quarter, particularly in light of the weak economic environment. Our non-prescription reading glasses business showed particular strength, once again exhibiting the robust nature of this category and of our market-leading brands, Magnivision� and Foster Grant�. Revenues improved 37% in our sun segment, largely on the strength of our Dioptics business. Finally, we showed improvement in gross margins and control of operating expenses, which contributed to these excellent results.�

Segment highlights:

Sales of non-prescription reading glasses increased 6% in the second quarter of 2009 compared to the year ago period. Revenues in 2009 were negatively impacted by the discontinuation of an opening price point program at Wal-Mart, which contributed approximately $2.3 million to net sales in the second quarter of 2008. Excluding the effect of this program, sales of non-prescription reading glasses increased 15% due to the benefit of an updated program at a major retailer and continuing organic growth at existing customers.

Sales in the sunglasses and prescription frames segment increased 37% in the second quarter of 2009, including sales from the Dioptics product line, which was acquired in November 2008. The remainder of the sunglasses business declined due to a combination of adverse weather and the reduction in the current period of a promotional program commenced at a major retailer in 2008.

Sales in the company�s international segment were down 32% in the second quarter, while on a constant currency basis international sales declined 17% when compared to the corresponding year ago period. The decline on a constant currency basis was principally due to a non-anniversaried reading glass roll-out to major customers in the UK in the second quarter of 2008, partially offset by improved sunglasses sales in the UK.

Reconciliations of EBITDA and free cash flow, which are non-GAAP measures, are included in the Consolidated Statements of Operations and Other Selected Data, and related notes thereto, attached to this release. The company believes that these non-GAAP measures are useful for an understanding of its ongoing business.

Additional Q2 Details:

In the second quarter of 2009, gross profit as a percentage of net sales was 54.2%, compared to 53.1% in the second quarter of 2008. This improvement was principally due to the reduction of a low margin seasonal sunglass program at a major retailer and improved cost of goods sold in both optical segments.

In the second quarter of 2009, operating income increased to $11.2 million, or 15% of net sales, from $7.6 million, or 11% of net sales, in the second quarter of 2008. The increase in operating income was driven by increased sales and improved gross margins, partially offset by increased operating costs from the addition of our Dioptics business and advertising campaigns that concluded in the current quarter.

Capital expenditures were $1.8 million in the second quarter of 2009, compared to $2.7 million in the second quarter of 2008. The decrease relates to display fixtures placed at retailers in the second quarter of 2008 that were not anniversaried in the current period.

Days sales outstanding improved to 50 days in the current quarter from 62 days in the second quarter of 2008. This improvement was due to a continuing focus on working capital management.

Inventory days on hand were 94 days in the current quarter, compared to 95 days in the second quarter of fiscal 2008.

Disposal of Costume Jewelry Business

As previously disclosed, the company completed the disposal of its costume jewelry business for approximately $1.3 million on July 23, 2009. As expected, the pre-tax loss relating to the divestiture of the jewelry business recorded in the second quarter was $5 million. Results for the costume jewelry business have been reported in the accompanying financial statements as discontinued operations for all periods presented.

New Account Update

The company has been awarded expanded sunglasses and reading glasses programs at Kroger stores throughout North America. The programs are expected to begin shipping to over 700 stores during the fourth quarter of 2009 and contribute annual net revenues of $3 to $4 million.

Liquidity and Capital Resources

In the second quarter of 2009, the company generated $14 million of free cash flow from continuing operations. At the end of the second quarter, the company had $37 million of availability under its revolving credit facility, which matures in 2012. The company plans to continue to use its free cash flow to make accretive acquisitions and reduce indebtedness, including $15 million of scheduled principal repayments in 2009.

Outlook

Management�s expectations for full year 2009 results from continuing operations, excluding the impact of the costume jewelry business, are unchanged from when the company announced its 2009 outlook on February 25, 2009: net sales of $265 to $275 million, earnings per diluted share of $0.96 to $1.06 and EBITDA of $58 to $60 million.

For the third quarter of 2009, the company currently expects the following results from continuing operations: net sales of $58 to $62 million, earnings per diluted share of $0.26 to $0.30 and EBITDA of $14 to $16 million.