Perry Ellis International Inc. reported results for the fourth quarter and the fiscal year ended January 28, 2017.

Key Fiscal 2017 Financial Accomplishments And Operational Highlights

  • GAAP diluted EPS of 95 cents increased from a GAAP loss of 49 cents per share in fiscal 2016
  • Adjusted diluted EPS increased 13 percent to $2.04 from $1.81 in fiscal 2016
  • Gross margin expanded 150 basis points to 37 percent
  • Adjusted gross margin expanded 140 basis points to a record 37.2 percent
  • Delivered $2.78 per share in operating cash flow driven in part by a 17 percent decrease in inventory to $151 million from $183 million in fiscal year 2016
  • Generated cost savings of $7 million for fiscal 2017 on top of $7.8 million in fiscal 2016.
    Company introduces guidance for fiscal year 2018 for revenues in a range of $870 million to $880 million and adjusted diluted earnings per share in a range of $2.07 to $2.17.

Oscar Feldenkreis, chief executive officer and president, commented, “Fiscal 2017 saw solid progress on our strategic plan, which led to sales growth in our core global brands, expansion in gross margin and earnings in line with guidance. While $12 million in revenues were held back in the fourth quarter as certain retail partners lowered shipments in a challenging retail environment, the strength of our sell through rates enabled us to recapture the majority of these sales shipments at the start of fiscal 2018. We believe this is a testament to the power of our lifestyle brands, the strength of our design and marketing, and the disciplined execution of our strategy by our team.”

Fiscal 2017 Fourth-Quarter Results
Total revenue for the fourth quarter of fiscal 2017 was $204 million, a 4.7 percent decrease (3.3 percent decrease on constant currency) compared to $214 million reported in the fourth quarter of fiscal 2016. This reflected a 1.4 percent (3.2 percent on constant currency) increase in men’s business including Perry Ellis, Original Penguin, Golf Lifestyle Apparel and Nike, offset by a number of factors, including a comparable sales decline of 6.2 percent within our direct-to-consumer (“DTC”) business as store traffic dropped by 15 percent, and at wholesale, industry softness, which impacted wholesale shipments and replenishment deliveries during the second half of January.

Assortments and inventory were managed well, which led to the expansion of adjusted gross margin by 150 basis points to 38.7 percent from 37.2 percent in fourth quarter of fiscal 2016. Strength in the company’s Perry Ellis, Golf Lifestyle Apparel and Nike business led to the margin increase. For the fourth quarter of fiscal 2017, gross margin expansion coupled with tight expense discipline enabled the company to expand adjusted EBITDA margins to 8.4 percent as compared to 6 percent in the fourth quarter of fiscal 2016.

As reported under GAAP, the fourth quarter of fiscal 2017 net income was $9 million or 59 cents per diluted share, compared to a loss of $17.7 million, or $1.18 per diluted share, in the fourth quarter of fiscal 2016. Adjusted net income for the fourth quarter of fiscal 2017 totaled $10.1 million or 66 cents per diluted share as compared to $5.4 million or 35 cents per fully diluted share in the fourth quarter of fiscal 2016.

Fiscal 2017 Results
Fiscal 2017 revenues were $861 million, as compared to $900 million in fiscal 2016. The company’s core brands saw revenue growth of 1.6 percent (3.2 percent on constant currency) in the year. This was offset by planned reductions of $20 million in exited brands and an $11 million reduction in special market programs. The 2017 fiscal year also saw an $11 million negative impact from unfavorable foreign exchange rates, a decline of $15 million in women’s shipments as well wholesale shipments totaling $12 million which shifted to the first quarter of fiscal 2018.

Adjusted earnings per diluted share for fiscal 2017 were $2.04 compared to adjusted earnings per diluted share of $1.81 in fiscal 2016. Adjusted earnings per diluted share exclude the costs outlined in the attached Table 1 for both fiscal periods.
On a GAAP basis, net income for fiscal 2017 was $14.5 million, or 95 cents per diluted share, compared to a GAAP net loss of $7.3 million, or 49 cents per diluted share, for fiscal 2016.

Earnings before interest, taxes, depreciation, amortization and impairments, as adjusted (“adjusted EBITDA”) for fiscal 2017 totaled $57.2 million, or 6.6 percent of total revenues, as compared to $55.3 million, or 6.1 percent of total revenues, in fiscal 2016.

Adjusted gross margin for fiscal 2017 was 37.2 percent compared to adjusted gross margin of 35.8 percent in fiscal 2016. Gross margin was positively impacted during fiscal 2017 by favorable product performance which led to increases in merchandising margin in the company’s domestic businesses. In addition, gross margin benefited from a mix driven by an increase in licensing revenues, which have a higher gross margin than other revenues.

Selling, general and administrative (SG&A) expenses totaled $280 million for fiscal 2017 as compared to $275.9 million in fiscal 2016. SG&A in fiscal 2017 included $10.1 million in pension plan termination expense, as well as $7.2 million related to exited brands, consolidation of operations and strategic initiatives. SG&A in fiscal 2016 included $4.4 million related to pension costs associated with lump sum settlement payments on the termination of the company’s defined benefit plan as well as $5.5 million related to exited brands, consolidation of operations and strategic initiatives.

Balance Sheet
The company’s financial position continues to be very strong. Year-end cash and investments at the end of fiscal 2017 totaled $30.7 million with $50 million of long-term debt. The company’s net debt to total capitalization stood at 17.2 percent at fiscal 2017 year-end as compared to 23.9 percent at the end of fiscal 2016. Working capital management continues to be a critical focus across the organization as inventory turned at approximately 4x for fiscal 2017.
Update on Strategic Priorities for Fiscal 2017 to Enhance Profitability

George Feldenkreis, executive chairman, Perry Ellis International, commented, “While the global retail landscape continues to be rapidly changing with major foreign currencies largely weakening against the U.S. dollar and unpredictable and volatile global consumer spending, we believe that we have successfully navigated this environment having delivered a year of enhanced margins and profitability. We continue to invest in our digital platform which we believe will become more critical in the future given evolving consumer shopping trends. We believe that our best-in-class teams will continue to manage the volatility by leveraging our powerful brand platforms and operations, while not losing sight of our long-term vision. We are committed to delivering stockholder value and our recent licensing announcements demonstrate our belief in taking strategic actions and making investments to support the long-term growth potential of Perry Ellis International and our businesses.”

The company’s focused strategy includes:

  • Focusing on high performing, high growth brands and businesses. Continuing to optimize its competitive position by delivering exceptional product with innovation and differentiation. Key priorities will focus across our global growth brands led by Perry Ellis, Original Penguin, Golf Lifestyle as well as our licensed Nike Swim business.
  • Strengthening strategic brand position in the menswear arena through the wholesale, retail and licensing of core brands. By focusing on the consumer experience through retail shops, digital interplay and social media outreach, it is working to make its brands relevant to connect with a wide range of customers.
  • Expanding international distribution through direct investment in North America and Europe as well as strategic partnerships with licensees and other partners. During fiscal 2017, the company signed 22 new licenses that extended seven of the company’s brands across geographies and product categories. The company realized 6 percent revenue growth internationally on a constant currency basis but maintained a 13 percent mix of international to total revenues (14 percent on a constant currency basis).
  • Enhancing the DTC channel. The company held DTC to 11 percent of total revenue despite the closure of 10 store locations during the year. Driving more profitability through physical stores is critical with increasing focus on conversion. The company realized a 50 basis point conversion improvement in its stores for the year with traffic declining close to 10 percent for the year.  Retail comparable store sales were down 5.7 percent for the 2017 fiscal year while comparable store margins were down 1.8 percent. E-commerce performed well growing 18 percent during fiscal 2017.
  • Driving operational efficiencies through process enhancements, inventory management and sourcing improvements. The company streamlined its internal team and reporting processes to simplify the business and improve operating performance. Savings for the 2017 fiscal year totaled $7 million after delivering $7.8 million in fiscal 2016. Supply chain and speed to market will be critical focus areas for fiscal 2018 and beyond.

Fiscal 2018 Guidance
For fiscal 2018, the company expects total revenues in the range of $870 to $880 million, taking a conservative view as retail store closures across the industry continue to be a consistent theme. Adjusted diluted earnings per share are expected in a range of $2.07 to $2.17.

Perry Ellis’ brands include: Perry Ellis, Original Penguin by Munsingwear, Laundry by Shelli Segal, Rafaella, Cubavera, Ben Hogan, Savane, Grand Slam, John Henry, Manhattan, Axist, Jantzen and Farah. The company also licenses trademarks from third parties, including: Nike and Jag for swimwear, and Callaway, PGA Tour and Jack Nicklaus for golf apparel.