Perry Ellis International reported earnings on an adjusted basis were down slightly in the first quarter ended May 5, but easily topped Wall Street’s consensus targets. Sales rose 5.4 percent.
Key First Quarter Financial Accomplishments:
- Total revenues rose 5.4 percent to $255 million from $242 million in the first quarter of fiscal 2018. Revenues were fueled by growth in Golf and Nike Swim and a high-single digit increase in the direct-to-consumer channel sales.
- GAAP pre-tax income was $13.1 million compared to $14.5 million in the first quarter of fiscal 2018, and adjusted pre-tax income rose 7.6 percent to $15.6 million from $14.5 million in the first quarter of fiscal 2018.
- Adjusted net income per share, diluted, of 78 cents, ahead of Wall Street’s consensus estimate of 67 cents. GAAP net income per share, diluted of 66 cents.
- Debt-to-capitalization stood at 18.9 percent at the end of the first quarter of fiscal 2019, compared to 24.3 percent at the end of the first quarter of fiscal 2018.
- A strong balance sheet at quarter end with cash and investments totaling $55.4 million, which provides the company with liquidity to facilitate the $50 million bond redemption that took place on May 29th, 2018.
- Strong inventory position at $151 million, substantially down from fiscal 2018 year end, but up slightly from the first quarter of fiscal 2018, fueling our spring shipping.
Oscar Feldenkreis, chief executive officer and president, commented, “We are very pleased with our start to fiscal 2019, which continued our momentum from last year. During the quarter, our innovative products and high impact marketing led to stronger-than-expected shipments, especially in Nike Swim and across our golf brands. We ended the quarter with a strong balance sheet, which enabled us to retire $50 million of outstanding notes. We remain optimistic about our business prospects as we enter the second quarter, and we conservatively plan to hold the full year guidance.”
Fiscal 2019 First Quarter Results
Total revenue for the first quarter of fiscal 2019 was $255 million, a 5.4 percent increase (4.5 percent increase on constant currency) compared to $242 million reported in the first quarter of fiscal 2018. This reflected increases in the company’s core brands and in particular Golf and Nike Swim, along with a double digit increase in comparable store sales in the direct-to-consumer channel. The increase in revenue includes a $1.5 million increase due to the adoption of the new revenue recognition standard, which requires advertising reimbursements to be classified as revenue instead of as a reduction of the related advertising costs, as was the case in fiscal 2018. This growth was offset by declines in the women’s business.
GAAP gross margin was 36.8 percent in the first quarter of fiscal 2019, compared to 37.6 percent in the first quarter of fiscal 2018, driven by changes in product mix and the change in the accounting standard for revenue recognition, which shifts licensing revenues to the fourth quarter rather than spreading revenues evenly throughout the year. Adjusted gross margin was 36.8 percent, compared with adjusted gross margin of 37.6 percent in the first quarter of fiscal 2018.
Adjusted EBITDA totaled $20.8 million as compared to $19.9 million in the first quarter of fiscal 2018.
Adjusted pre-tax income was $15.6 million, increasing 7.6 percent from $14.5 million in the first quarter of fiscal 2018. GAAP pre-tax income was $13.1 million compared to GAAP pre-tax income of $14.5 million in the first quarter of fiscal 2018.
As reported under GAAP, for the first quarter of fiscal 2019, net income was $10.2 million, or $0.66 per diluted share, compared to net income of $12.8 million, or $0.83 per diluted share, in the first quarter of fiscal 2018. Adjusted net income for the first quarter of fiscal 2019 totaled $12.1 million, or $0.78 per diluted share, as compared to $12.8 million, or $0.83 per diluted share, in the first quarter of fiscal 2018.
The company’s financial position continues to be very strong. Cash and investments at the end of the first quarter of fiscal 2019 totaled $55 million. The company’s net debt to total capitalization stood at 18.9 percent at the end of the first quarter of fiscal 2019 as compared to 24.3 percent at the end of the first quarter of fiscal 2018. Working capital management continues to be a critical focus across the organization as inventory turned at approximately 3.8 for the first quarter of fiscal 2019.
Fiscal 2019 Guidance
The company is holding its revenue and earnings guidance for fiscal 2019. For comparability, the company has recast its fiscal 2018 sales and earnings to remove the sales, income and losses related to the transition of the Laundry dress business to a license model and the elimination of Bon-Ton sales due to its bankruptcy and liquidation.
For fiscal 2019, the company currently expects total revenue to be in the range of $855 million to $865 million, which compares to “core business” sales of $844 million in fiscal 2018. This revenue range includes a $5 million increase due to the reclassification in license advertising contributions from SG&A due to the new accounting revenue recognition rules.
Excluding any potential expenses (which will be significant) to be incurred by the company in connection with the Special Committee’s exploration and evaluation of potential strategic alternatives and the related February 6, 2018 proposal to acquire the company, diluted earnings per share are currently expected in the range of $1.80 to $1.90, which compares to “core business” adjusted diluted earnings per share of $1.70 in fiscal 2018. This earnings per share range includes a benefit of $0.05 per share due to after-tax savings from the retirement of $50.6 million of Notes on May 29th. When used in this section, the term “core business” means fiscal 2018 sales and earnings, removing any sales, income and losses related to the transition of the Laundry dress business to a license model and the elimination of Bon-Ton sales due to its bankruptcy and liquidation.
Perry Ellis International’s brands include: Perry Ellis, An 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 operates some brands through licensing trademarks from third parties, including: Nike and Jag for swimwear; Callaway, PGA TOUR, Jack Nicklaus for golf apparel and Guy Harvey for performance fishing and resort wear.