Perry Ellis International, the parent of several major golf brands and the Nike swim licensee, showed progress in its turnaround efforts, slashing its loss in the third quarter amid continued sluggish sales.

But the apparel conglomerate spent much of last week answering calls by at least two of its largest shareholders to consider breaking up.

In a letter published last Tuesday, Perry Ellis Legion Partners, LLC and California State Teachers Retirement System (CalSTRS), which own a combined 6.3 percent of Perry Ellis, recommended to the company’s board of directors that they appoint a special committee and hire an independent investment bank to assist it in evaluating strategic alternatives.

Legion Partners and CalSTRS said they released the letter because the board had refused to form the committee and because discussions with fellow shareholders made it clear that many “are unhappy with the status quo and want to see substantial change.

The company has long been under the control of the Feldenkreis family. Founder and CEO George Feldenkreis, along with his son and president, Oscar, own more than 17 percent of Perry Ellis shares.

The letter noted that Perry Ellis three largest segments – Men’s Sportswear and Swim, Women’s Sportswear and Direct-to-Consumer-are all losing money. Only the company’s Licensing segment made money in the second quarter.

Reports in the financial press indicated Sequential Brands, Authentic Brands and Sycamore Partners had probed the company about a possible sale. Iconix Brand Group was also mentioned as a possible suitor.

In response, Perry Ellis last Thursday issued an open letter to shareholders defending its performance, including expanding the company from $33 million in sales in 1992, the year it went public, to $912 million in 2014. But it particularly detailed progress since the beginning of the first quarter implementing a profitability improvement plan.

Signs of progress witnessed in the third quarter included expanding gross margins by over 100 basis points in the nine months; realizing growth of 30 percent in e-commerce, 20 percent internationally, and 7 percent in licensing; reducing inventory by 6.0 percent year-over-year at the close of the quarter; and generating an incremental $4.0 million in cost savings during the third quarter. It has also exited 29 low-margin brands totaling $65 million in revenues since January 2013.

The letter also stated that management continues its focus on maximizing growth its power brands, including Perry Ellis, Original Penguin, Rafaella and Ben Hogan, as well as its licensed portfolio that include Nike and Jag for swimwear, and Callaway, PGA Tour, and Jack Nicklaus for golf apparel.
 
The letter stressed management has a high priority around succession with a deep bench of talent at Perry Ellis to handle this important objective at the appropriate time. Noting that its board members collectively own 25 percent of the company’s stock and had appointed two independent directors in the last year, Perry Ellis also assured investors that its experienced board was up to the task of guiding the company.

Maximizing shareholder value is a matter that the entire board is acutely focused on. Therefore, the Board does not believe it is efficient to form a strategic committee, the letter stated. It was signed by George Feldenkreis and Joseph Lacher, lead independent director.

In the third quarter ended Nov. 3, sales declined 5.3 percent to $203.3 million. Its loss was cut to $437,000, or 3 cents a share, from $3.0 million, or 20 cents, a year ago. Adjusted net EPS of 3 cents a share was in line with guidance of an adjusted net EPS of 2 cents to 6 cents a share and represented a significant improvement from an adjusted net loss per share of 15 cents in the prior year third quarter.

The bottom line was helped by an improvement in gross margins by 120 basis points to 33.3 percent, reflecting continued effort to focus on higher margin businesses and channels of distribution.

Revenues were impacted by planned exits of certain private and retailer exclusive branded programs that are substantially complete, officials said on a conference call with analysts. Increases in Callaway, Original Penguin, Perry Ellis Accessories, Direct to Consumer and International offset planned reductions in Perry Ellis and Rafaella collection sportswear. The revenues were also impacted by a $6.0 million shift in revenue to the fourth quarter from the third quarter of fiscal 2015 due to congestion at the West Coast ports and the increase in demand for trucking.

Overall, the golf division performed in line with plans in what is the segments smallest quarter during the year and despite conservative inventory postures by many retailers. Callaway, which saw a high-single digit gain, particularly benefited from a successful launch in Europe. Callaway also saw an outstanding reception to bookings for its new training line. A fall line of fleece and sweatshirts was also launched in the quarter to help balance Callaways full-year offerings, as well as a performance cotton collection. Ben Hogan, an exclusive to Walmart, saw more than 50 percent growth in the quarter while PGA Tour saw strong growth in Canada.

Feldenkreis said Nike Swim continues to record impressive gains with continued expansion in departments stores, sporting goods chains, and team dealers.

The company continues to expect total revenues to be in a range of $910 to $920 million for its 2015 fiscal year and adjusted earnings per diluted share for fiscal 2015 in a range of 85 cents to 95 cents a share.