FGX International, the parent of Gargoyles, reported sales increased 3% in the first quarter to $61.1 million from $59.2 million a year ago. The net loss was $0.6 million, or 3 cents a share, against net income of $2.2 million, or 10 cents, a year ago. The bottom line included a
$1.8 million, or 5 cents a share, pre-tax goodwill impairment charge
related to the pending divestiture of the companys costume jewelry
Adjusted net income in the current period, excluding a non-cash goodwill impairment charge discussed below, was $0.5 million, or 2 cents per diluted share.
As planned, the company spent $2.9 million in incremental marketing and advertising compared to the first quarter of 2008.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the current period was $7.2 million. EBITDA based on reported results was $5.3 million in the current period compared to $10.5 million in the first quarter of 2008.
CEO Alec Taylor commented, “We were pleased with our performance during the first quarter of 2009, which came in at the upper end of our guidance. These results were achieved despite a challenging retail environment and the lingering effects of retail inventory destocking. As planned, we invested significantly in advertising our FosterGrant and Magnivision brands, which allowed us to strengthen our market-leading position in the over-the-counter reading glasses category. Additionally, we are pleased to announce plans to divest our costume jewelry business, which will allow us to focus on our core optical business segments.”
By segment, non-prescription Reading Glasses sales declined 4% to $26.2 million; Sunglasses & Prescription Frames was ahead 45% to 26.2 million; Costume Jewelry was down 41% to $2.0 million; and International was off 36% to $6.7 million.
Sales of non-prescription reading glasses declined 4% during the first quarter of 2009 compared to the first quarter of 2008, primarily due to the discontinuation in September 2008 of the Companys opening price point program at Wal*Mart, which contributed approximately $2.1 million to net sales in the first quarter of 2008. Excluding the effect of this opening price point program, sales of non-prescription reading glasses increased 4%, primarily due to organic growth at existing customers.
Sales in the sunglasses and prescription frames segment for the first quarter of 2009 increased 45%, including sales of $8.1 million from the Dioptics product line, which was acquired in November 2008. Excluding the revenue contribution from the Dioptics product line, sales in the sunglasses and prescription frames segment were flat year over year.
Costume jewelry sales declined 41% in the first quarter of fiscal 2009 due to the continuing deterioration of retail sales at most major customers.
Sales in the Companys international segment were down 36% for the first quarter when compared to the corresponding year ago period, in part due to the strengthening of the US dollar. On a constant currency basis, international sales declined 16% in the first quarter of 2009 when compared to the corresponding year ago period, principally due to a non-anniversaried sunglasses roll-out to a major UK customer in the first quarter of 2008.
Additional First Quarter 2009 Results:
In the first quarter of 2009, gross profit as a percentage of net sales was 53.1%, compared to 53.8% in the first quarter of 2008. The decrease was principally due to the growth in the sunglasses and prescription frames segment, resulting from sales of the Dioptics SolarShield and PolarEyes brands.
In the first quarter of 2009, adjusted operating income was $2.1 million. As reported operating income was $0.3 million, compared to $5.6 million in the first quarter of 2008. The decrease in operating income for the first quarter of 2009 was primarily driven by the aforementioned increase in marketing and advertising spending.
Capital expenditures were $2.2 million in the first quarter of 2009, compared to $4.0 million in the first quarter of 2008. The decrease relates to display fixtures placed at retailers in the first quarter of 2008 that did not anniversary in the current period.
Days sales outstanding improved to 66 days in the current quarter from 72 days in the first quarter of 2008. This improvement was due to a continuing focus on working capital management.
Inventory days on hand were 124 days in the current quarter, compared to 111 days in the first quarter of fiscal 2008. The increase was primarily due to retailers increased focus on managing their stocking levels, resulting in a greater amount of inventory being carried by the Company.
Stock compensation expense was $0.8 million, or $0.02 per diluted share, in the current quarter, compared to $0.5 million, or $0.02 per diluted share, in the first quarter of 2008.
During the first quarter of 2009, the Company did not repurchase any additional shares under its stock buyback program. The Company has approximately $10.5 million of stock buyback authorization remaining in the program, which expires February 18, 2010.
Disposal of Costume Jewelry Business
In April 2009, the Company entered into a non-binding letter of intent to sell substantially all of the assets related to its costume jewelry business for approximately $1.5 million. The transaction is expected to close in the second quarter of 2009, subject to execution of a definitive purchase and sale agreement. In connection with the plan to dispose of the business, the Company has recorded a non-cash goodwill impairment charge of $1.8 million, or $0.05 per share, for the first quarter of 2009 and expects to record additional pre-tax charges, net of proceeds, of $4 million to $6 million in the second quarter of 2009 relating to the disposal of the business. Upon completion of the sale, the costume jewelry business will be presented as a discontinued operation.
CEO Alec Taylor concluded, “Our first quarter results once again demonstrated the strength of our core reading glasses and sunglasses businesses which together posted positive sales, when most of our retail partners were experiencing overall declining results. As we look forward, improving gross margins and continued tight control of operating expenses, combined with a modestly improving retail environment, should result in performance in line with expectations and well ahead of a year ago.”
FGX International Holdings' eyewear brands including Foster Grant®, Magnivision®, Angel , Gargoyles®, Anarchy®, SolarShield® and PolarEyes®. FGXI also holds licenses for brands such as Ironman, Levi Strauss, Field & Stream, Body Glove and C9 by Champion.