Perry Ellis International reported revenue in the first quarter rose 3.5 percent while net earnings rose 21.0 percent. The company also increased its full-year guidance.
Key Fiscal First Quarter 2016 Financial and Operational Highlights:
- Adjusted diluted EPS increased 80 percent year over year to $0.99 as compared to $0.55 per diluted share in prior year.
- Net revenues of $266 million, as compared to $257 million in prior year.
- Diluted GAAP EPS of $0.62, as compared to $0.52 in prior year.
- Adjusted gross margin expansion of 80 bps to 34.9 percent as compared to 34.1 percent in comparable period of prior year. GAAP gross margin was 33.8 percent for the period.
- Adjusted EBITDA margin expansion of 200 bps to 9.3 percent as compared to 7.3 percent in comparable period of prior year. company completed the redemption of $100 million of its 7.875 percent senior subordinated notes and expanded its credit facility to $200 million resulting in $4.5 million in annual interest savings for fiscal 2016.
- Increases fiscal 2016 Adjusted EPS guidance to a range of $1.68 to $1.75.
Oscar Feldenkreis, president and chief operating officer of Perry Ellis International, commented, “We had a strong start to the year highlighted by growth in net revenues, expansion in gross margin and a significant increase in adjusted earnings per share, as compared to the first quarter last year. Our results reflect the success of our strategy to expand core brands and higher margin businesses. During the quarter, we delivered balanced growth across our domestic revenue and international business; we increased licensing revenue and achieved a 4.5 percent comparable sales increase in our direct-to-consumer channel. Gross margin and EBITDA margin expansion were ahead of our plans and set the stage for us to continue this positive momentum as we move through the year. I am optimistic about Perry Ellis' future as we execute against our strategic goals this year and lead the company on our growth and profitability plan.”
Fiscal 2016 First Quarter Results
Total revenue for the first quarter of fiscal 2016 was $266 million, a 4 percent increase compared to $257 million reported in the first quarter of fiscal 2015. The company realized increases in its core global brands, Perry Ellis and Original Penguin as well as in its golf lifestyle apparel business. Revenues in international, licensing and direct-to- consumer (DTC) platforms all moved ahead as well.
During the first quarter of fiscal 2016, adjusted gross margin expanded to 34.9 percent as compared to 34.1 percent in the same period of the prior year. (Gross profit totaled $90.1million inclusive of $2.9 million of costs related to exited businesses and the consolidation of the Beijing office.) The expansion reflected a favorable business mix, better sell-through at retail in the Perry Ellis and Rafaella collection businesses, and savings realized from continued freight cost reductions. (Adjusted gross margin includes certain items as outlined in Table 3, Reconciliation of Gross Profit to Adjusted Gross Profit.) GAAP gross margin for the period was 33.8 percent.
Selling, general and administrative expenses totaled $69.6 million as compared to $69.7 million in the comparable period of the prior year. Excluding costs associated with streamlining and consolidation of operations, expenses totaled $68.3 million, or 25.6 percent of revenues, as compared to $68.9 million or 26.8 percent in prior year.
As reported under GAAP, fiscal 2016 first quarter profit was $9.4 million, or $0.62 per diluted share, as compared to $7.8 million, or $0.52 per diluted share, in the first quarter of fiscal 2015. On an adjusted basis, fiscal 2016 first quarter earnings per diluted share were $0.99 as compared to adjusted earnings per diluted share of $0.55 in the first quarter of fiscal 2015. These results benefited from improved operating results as well as a lower effective tax rate for fiscal 2016. (Adjusted earnings per diluted share exclude certain items as outlined in Table 1, Reconciliation of GAAP net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share.)
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the first quarter of fiscal 2016 totaled $24.7 million as compared to $18.7million in the comparable period of the prior year. Adjusted EBITDA margin expanded to 9.3 percent from 7.3 percent in the prior year. (Adjusted EBITDA excludes certain items as outlined in Table 2, Reconciliation of Net (Loss) Income to EBITDA and adjusted EBITDA.
At the close of the quarter, the company's financial position was solid. Inventories decreased 13 percent to $153 million from $177 million at the end of the comparable period in the prior year with continued emphasis on increasing turn. As previously reported, the company expanded its credit facility from $125 million to $200 million and utilized this to redeem $100 million if its senior subordinated notes on May 6, 2015.
Update on Strategic Priorities for Fiscal 2016 to Enhance Profitability
The company continues to focus on successfully implementing its growth and profitability plan.
George Feldenkreis, Chairman and Chief Executive Officer, Perry Ellis International, commented, “The team executed with precision a number of important strategic actions over the past 22 months. As a result of actions taken and others underway, Perry Ellis has a stronger portfolio, solid foundation to drive our future growth and a clear path forward creating value for all stakeholders. There is still more work to do and I am encouraged by our ability to achieve our operational and financial goals. The progress that we continue to register on our plan was clearly delineated this quarter. I feel that with the solid foundation that we have in place and a clear path that we will continue to demonstrate progress toward our goals in the current year and well into the future.”
The company's focused strategy includes:
- Focus on high performing, high growth brands and businesses. Since Fiscal 2014, the company exited 30 brands, which generated approximately $80 million in revenues, and refocused its portfolio toward core, high-margin brands. The company will continue to assess its brands and businesses on an ongoing basis.
- Continuing to optimize competitive positioning in the menswear arena through the wholesale, retail and licensing of its core brands. Both Perry Ellis and Original Penguin collections increased just under 10 percent in the first quarter fiscal 2016.
- Driving international and licensing growth through direct investment in North America and Europe as well as strategic partnerships with licensees and other partners. During the first quarter, the company signed seven licenses which included five brands across regions and product categories. The company realized 10 percent revenue growth in licensing for the quarter and expects to expand on this growth for the remainder of the year. International increased by 30 bps and represented 11 percent of total revenues compared to 10.7 percent in the comparable period of the prior year.
- Expanding the DTC channel. The company DTC platform is an important component of the company's growth and profitability strategy. The company realized a 4.5 percent comparable sales increase in direct-to-consumer and a 7 percent comparable gross margin increase.
- Driving efficiencies and generating cost savings through process enhancements, inventory management and sourcing improvements. In the first quarter of fiscal 2016, the company realized $2.3 million in savings in cost of goods and in SG&A.
Fiscal 2016 Guidance
The company continues to expect total fiscal 2016 revenues to be in a range of $925 to $935 million. Given the stronger performance in the first quarter coupled with the financial savings in interest, the company now expects adjusted earnings per diluted share for fiscal 2016 in a range of $1.68 to $1.75 as compared to the previous guidance range of $1.45 to $1.55.