Orange 21 struggled through the first quarter with essentially flat sales and income in spite of better margins and lower R&D expenses. Management said that this flat performance was expected as they work to reposition the brand and build demand for their core styles. First quarter net sales were $9.4 million, unchanged compared to last year.
Gross profit as a percentage of sales increased 410 basis points to 52.2% from 48.1% during the first quarter last year. This gain was due to efficiencies from the acquisition of LEM, Spys primary manufacturer.
Sales and marketing expense increased 9% to $3.8 million, or 40.4% of sales compared to $3.5 million, or 37.2% of sales last year. The increase was due to increased depreciation expense on point-of-purchase store displays of $200,000 due to a reduction in depreciable lives to two years.
General and administrative expense increased 17% to $2.5 million, or 26.6% of sales compared to $2.1 million or 22.3% of sales last year. The increase was primarily due to increases in employee-related compensation expense in the U.S., increased severance pay for LEM employees, and accounting and software consulting costs from the implementation of a new ERP system.
Mark Simo, chairman and CEO, said, “In the first quarter we made gains in terms of the quality of our inventory and our overall ability to execute as we move into our peak sunglass season. We are now focusing on creating and meeting demand for our core styles through the summer season. My goal continues to be to demonstrate stability this year, while positioning the brand for future growth.”
On the bottom line, Orange 21 reported a net loss of $1.8 million, 5.8% higher than last years Q1 loss of $1.7 million. Management did not provide guidance due to the nature of its turn-around initiatives.