Nautica reported net sales for the first quarter ended May 31, 2003 increased 10.6% to $139.2 million compared with $125.9 million in the first quarter last year. Sales in the wholesale segment grew 12.4% to $107.1 million compared with $95.3 million in the same period last year, driven by increases in Nautica Men’s Jeans, Nautica Women’s Sleepwear, Nautica Children’s, and Nautica Underwear.
Sales in the retail segment, which includes seven full-priced retail and 114 outlet stores, increased 5.0% to $32.1 million compared with $30.6 million in the prior year period, with particularly strong sales increases of Nautica Children’s in the Nautica outlet channel of distribution. Comparative sales in the Nautica outlet division were down 3.3%.
Gross margin for the first quarter was 42.0% versus 44.3% in the first quarter of last year, reflecting an increase in markdowns and allowances in the Company’s wholesale businesses coupled with an increase in markdowns in the Nautica outlet division due to price compression.
Selling, general and administrative expenses as a percentage of sales, decreased 380 basis points to 43.4% from 47.2% in the prior year period. This improvement is primarily attributable to leverage gained from a higher sales base and savings realized from consolidating the Company’s distribution operations at its Martinsville, Virginia facility.
Net royalty income increased 19.3% to $2.8 million compared with $2.4 million in the first quarter last year, reflecting increases in royalty income from the Nautica Home Collection, Nautica Women’s Swimwear and Beachwear collections as well as the launch of its Nautica Competition fragrance.
On an operating basis, adjusted to exclude a special charge for the previously announced transition of the Nautica Europe business to licensing or other key arrangements, the Company reported net earnings of $0.4 million or $0.01 per diluted share, in-line with analysts consensus estimates. This compared to an adjusted net loss of $0.5 million, or a loss of $0.02 on a per share basis in the prior year. Under Generally Accepted Accounting Principles, the net loss was $1.6 million, or a loss of $0.05 on a per share basis for the first quarter, compared to a loss of $2.6 million, or a loss of $0.08 on a per share basis in the prior year period.
The Company believes that reporting net earnings excluding certain charges provides a more meaningful comparison of its financial results. For a description of the charges during the periods reported above, please refer to Note 1 below.
Harvey Sanders, Chairman, President and Chief Executive Officer of Nautica Enterprises, Inc., commented, “This is an exciting time for the Nautica business as we move towards completing the previously announced plans to merge with VF Corporation. We are particularly pleased with the Company’s first quarter earnings results, which were in-line with consensus estimates. Importantly, the strategic initiatives we have put in place over the last several months are beginning to yield tangible results. Of note, the Company’s key accomplishments this quarter include growing sales across many of the divisions and further rationalizing the Company’s cost structure as evidenced by the improvement in the SG&A margin. These achievements, together with strong free cash flow and a collection of well recognized brand names, position the Nautica business well for the long-term.”
Depreciation and amortization for the first quarter was $6.2 million versus $6.7 million in the first quarter last year.
Capital expenditures for the first quarter were $4.5 million compared to $4.3 million in the prior year period of which $2.1 million relates to in- store shops, $1.3 million relates to retail store build-out for stores that will open in the last three quarters of the fiscal year and $1.1 million relates to general improvements.
Inventory for the first quarter increased by $32 million over the prior year. This increase was due to several factors, including, (1) the timing of Fall 03 receipts, partially a result of earlier start ship dates compared to the prior year, (2) inventory to support the growth initiatives in the retail children’s business and sleepwear business, and (3) an increase in replenishment stock throughout several divisions. A portion of the increase in inventory ($5.2 million) at the end of the period represents prior season merchandise which the Company will dispose of in accordance with past practices.
The Company continues to remain conservative in its outlook for fiscal 2004 given the state of consumer confidence, the uncertainty with the economy as well as the continued difficulties facing the men’s collection arena. The Company expects to experience pressure on both its top line and gross margin for the full fiscal year due to the above mentioned factors, however, the Company anticipates that this will be offset by continued improvement in its cost structure.
The Company continues to expect to report earnings per diluted share in the range of $0.95 to $1.00, excluding the previously announced after-tax special charges of approximately $4.2 million, or $0.13 per diluted share related to the Nautica Europe transition. Also, this range does not include expenses related to the Company’s recently ended proxy contest, as well as fees associated with the recently announced merger with VF Corporation. The Company expects to report earnings per diluted share in the range of $0.31 to $0.32 for the second quarter of fiscal 2004, excluding the special charges referenced above.
CONSOLIDATED CONDENSED EARNINGS SUMMARY (all amounts in thousands, except per share data)
(unaudited)
Three Months Ended
May 31, June 1,
2003 2002
Net sales $139,220 $125,895
Gross profit 58,437 55,734
Operating expenses 60,463 59,363
Special charges 3,178 3,356
Net royalty income 2,830 2,372
Operating (loss) (2,374) (4,613)
Investment (expense) income (178) 414
Pre-tax (loss) (2,552) (4,199)
Benefit for income taxes (949) (1,574)
Net (loss) $(1,603) $(2,625)
Basic (loss) per share $(0.05) $(0.08)
Diluted (loss) per share $(0.05) $(0.08)
Net earnings (loss) before special charges $393 $(527)
