Perry Ellis International Inc. reported a net loss was $21.6 million, or $1.58 a share, compared with net income of $9.9 million, or 65 cents a share, a year ago. Excluding charges to reduce the reported value of certain trademarks and leasehold improvements, impairments and restructuring costs, the company posted a loss of 34 cents a share.
For the three months ended January 31, total revenues were $191.2 million, a 10% reduction compared to $212.3 million a year ago.
Although some of its platforms reported above-plan results, Perry Ellis said these were offset by a revenue decline of $6.4 million related to replenishment of private label bottoms business, the planned exit of several brands at the mens specialty store channel due to difficulties to get insurance on credit for this channel; and the highly promotional environment at the department store channel, primarily affecting our Perry Ellis brand.
Gross profit declined from $75.2 million to $55.5 million compared to the fourth quarter of fiscal 2008, driven by a higher level of markdowns and sales allowances to retail partners and the overall reduction in gross sales. Gross margins declined from 35.4% to 29.0%, negatively affected by the liquidation at below cost product previously sold in the specialty store channel and retailers who filed for Chapter 11 this year.
Oscar Feldenkreis, President and COO, commented, “We started fiscal 2009 with strong revenue growth and gross margin improvements; when the environment started to deteriorate we were able to maintain our performance through the first nine months of the year. However, consistent with the retail industry in general, the highly promotional holiday season led to the most challenging quarter we have seen. Our sales and gross margins were significantly affected by the pull-back in consumer spending and the strategy of certain retailers to accelerate the promotional cycle of products during the holiday season while simultaneously curtailing inventory receipts.”
Feldenkreis continued, “Even in todays environment, the consumer is still buying newness, strong brands, and affordable, high-quality product, which is the foundation we have developed at Perry Ellis. The value proposition of our brands remains highly attractive to consumers and led to record shipments to retailers like Kohls and J.C. Penney. In addition, some of our businesses such as Perry Ellis in mens and Nike in swim continued to gain market share in this tough environment.”
As expected, selling, general and administrative (“SG&A”) expenses grew during the fourth quarter by $2.5 million, primarily driven by:
(i) $1.2 million in one-time costs related to severance and exiting of redundant offices; and
(ii) $4.2 million in recurring operating expenses related to our new womens contemporary division.
These expenses were partially offset by initial results of the cost saving initiatives related to the Strategic Review process implemented during the third quarter of fiscal 2009.
“We are pleased to see the initial results of our restructuring initiatives. More than ever, we are committed to the strict control of expenses and investments to make sure that we are a much stronger company once the economy starts to improve,” Mr. Feldenkreis concluded.
In the fourth quarter of fiscal 2009, the Company recorded expenses for depreciation and amortization of $3.9 million, compared to $3.7 million during the same period last year.
During the required impairment evaluation under the U.S. generally accepted accounting principles (“GAAP”), the Company recorded a non-cash pre-tax impairment charge of $22.3 million during the fourth quarter of fiscal 2009. This charge is the result of the application of the impairment testing to certain trademarks and leasehold improvements primarily related to brands sold through the specialty store channel and by retailers who filed for chapter 11 during fiscal 2009 (“non-cash trademark and leasehold improvement charges”).
“These impairment charges have no impact on our cash flow, operations or compliance with debt covenants,” George Feldenkreis, Chairman and CEO, stated. “Our portfolio of brands remains well positioned to navigate these turbulent times, and we have initiatives in place to make our company more efficient by reducing costs. We are focused on the execution of our long term growth strategies and remain confident in the strength of our business model,” Mr. Feldenkreis continued.
Driven by these non-cash trademark and leasehold improvement charges and the one-time costs related to severance and exiting of redundant offices, the Company recorded a GAAP operating loss of $24.9 million during the fourth quarter of fiscal 2009, compared to GAAP operating income of $19.7 million during the same period last year.
Balance Sheet and Liquidity Review
Proactive cash flow, inventory and account receivable management has allowed the Company to remain in a solid financial position.
“We managed our business with strict liquidity discipline and controlled capital, inventory and expenses during fiscal 2009. We remain comfortable with our management of working capital and our capitalization ratios. Management is closely working with our retail partners and taking a disciplined and proactive approach to control both inventories and our receivables,” Mr. Feldenkreis continued. “As we turn the page from a very difficult fiscal year 2009, we have taken decisive action during the fourth quarter and now have all necessary charges implemented. We are beginning 2010 very focused on executing our initiatives to drive earnings.”
Inventories at $139.1 million increased by 2% compared to $136.4 million as of January 31, 2008 and remain in-line with our projected shipments for the first quarter of 2010. Inventory turns improved from 4.2 in fiscal 2008 to 4.3 turns during fiscal 2009. Accounts receivable, at $142.9 million, increased by $4.8 million compared to January 31, 2008. The Companys current-assets-to-current-liabilities ratio improved from 3.4 to 4.0 compared to the same period last year. At year end, the Company had $66.1 million in excess availability on its asset-based credit facility.
Fiscal 2009 Operations Results
Perry Ellis International reported total revenues for fiscal 2009 of $851.3 million, a 1.5% decline compared to the $863.9 million reported for the fiscal year ended January 31, 2008 (“fiscal 2008”). A record year for swim, licensing and e-commerce divisions, and our golf and Hispanic brands, were offset by:
(i)
Increase of $8.8 million, or 12%, in markdowns and sales allowances to retail partners;
(ii) Planned decrease of $32 million in private label bottoms in the mass distribution channel, plus slowdown of replenishment programs in department stores;
(iii) Sales reduction of $8.4 million related to the exiting of the mens specialty store channel;
(iv) Planned revenue decrease of $8 million due to the licensing of Perry Ellis dress shirt business;
(v) Decrease of $4.8 million on ASI/Corporate and Green Grass channels for PING brand; and
(vi) Order cancellation from retailers filing for Chapter 11 during the year.
Gross margin decreased by 107 basis points to 32.7% from 33.8% in fiscal 2008, driven by a highly promotional holiday season and liquidation of inventory below cost, both primarily during the fourth quarter.
During fiscal 2009, SG&A increased by $21 million, primarily driven by recurring expenses of $18.2 million due to the new womens contemporary platform and $3.8 million in operating expenses related to the addition of eight new retail stores. These increases were partially offset by strategic expense reductions – a hiring freeze and cancelation of management incentive bonuses, reduction in advertising and promotion and increased discipline in purchases of samples and design expenses.
In addition, the Company also incurred $6.9 million in one-time, non-recurring expenses during fiscal 2009:
(i) One-time restructuring and setup costs of $4.1 million related to:
a. Restructuring costs of European operations during the second quarter;
b. Severance and exiting costs related to Strategic Review cost savings initiatives; and
c. Initial setup costs related to the womens contemporary platform during second quarter; and
(ii) Non-cash impairment of marketable securities charges of $2.8 million for the year.
Excluding the non-cash trademark and leasehold improvement charges, non-cash impairment of marketable securities and one-time restructuring and set-up costs, the Company recorded EBITDA of $45.6 million, compared to $75.8 during the same period last year. Including non-cash impairment charges and non-recurring costs, the Company recorded EBITDA of $16.3 million. A table showing the reconciliation of EBITDA to net income is attached.
GAAP operating income for fiscal 2009 including non-cash trademark and leasehold improvement charges and the one-time costs related to severance and exiting of redundant offices – was $4.3 million compared to $62.5 million during fiscal 2008.
Fiscal 2010 Guidance
The Company announced that given the current uncertainty in the macroeconomic environment, it will temporarily suspend its policy of providing annual guidance until there is further clarity in the consumer and retail environment.
“We are confident about our prospects for fiscal 2010 and remain committed to maximizing shareholder value. We have the right diversification strategy, and we have taken all necessary actions to adjust our cost structure to the new economic realities,” Mr. Feldenkreis mentioned.
Feldenkreis concluded, “Several of our business platforms keep delivering strong results, such as swim, denim, golf, and Hispanic brands. Our penetration at all channels of distribution also continues producing positive results, and the turn around of our womens contemporary and retail platforms are well underway.”
“At this stage for this year, we anticipate a high single to low double digit decline in revenues, with improvement in gross margins during the second half of the year, and SG&A reduction of approximately $20 million dollars thanks to the cost reductions derived from our Strategic Review process. However, it is not prudent for us to generate expectations at this stage or commit to a firm guidance, as we need to see how the consumer reacts to governmental actions aimed at improving confidence and how our spring/summer products perform at retail. As soon as the uncertainty decreases, we will resume our annual guidance policy.”
