Perry Ellis International widened its loss in the second quarter ended Aug. 2 to $1.62 million, or 11 cents a share, from $2.83 million, or 19 cents, a year ago. On an adjusted basis, earnings were 2 cents better than guidance.
Highlights of the quarter include:
- Adjusted net loss per share of $0.08 better than guidance of an adjusted loss of $0.10 to $0.15 and represents a significant improvement from an adjusted net loss per share of $0.15 in the prior year second quarter.
- Net revenues total $204 million, in line with guidance and compares to $212 million in the prior year second quarter reflecting private label exits.
- GAAP net loss per share of $0.11, a significant improvement from net loss per share of $0.19 in the prior year second quarter.
- Company announces strategic priorities for the remainder of FY 2015
During the Second Quarter of Fiscal 2015 the Company:
- Expanded gross margin by 220 basis points to 34.6 percent of net revenues driven by improvements identified in a favorable mix shift associated with the Company's decision to reduce lower margin private and exclusive brand revenues and drive growth in higher margin lifestyle brands and channels including international, retail and licensing;
- Generated $4.2 million in cost savings by implementing actions resulting from the infrastructure review. The Company remains on track to deliver $9 million in cost reductions this year partially reinvested in the European expansion of Callaway and Original Penguin;
- Reported a significant improvement in adjusted net loss per share which totaled $0.08 compared to an adjusted net loss of $0.15 in the prior year second quarter;
- Executed eight new license agreements in the quarter as the Company continues to leverage its powerful portfolio of brands; and
- Effectively managed working capital by reducing inventory and accounts receivable. Reduced net debt position to $100 million, or 22 percent of total capitalization.
Oscar Feldenkreis, president and chief operating officer of Perry Ellis International commented, “There is positive momentum in our businesses as the team is focused on driving higher margin sales, adding licensing agreements and expanding our geographic reach and categories served. During the quarter we continued to make solid progress in our international expansion across our direct operations in Canada, Mexico and Europe. We see international growth and direct-to-consumer expansion as important drivers of the business going forward. As we look ahead, we are announcing strategic priorities that will enable us to maximize shareholder value by remaining focused on the strategic review of our portfolio and optimizing the positioning of our brands while continuing to reduce costs.
During the second quarter, our golf platform and Original Penguin brands led our growth while our Perry Ellis Men's Collection achieved solid sell through at retail. Our direct-to-consumer business delivered a 2.7 percent comparable same store sales increase and direct ecommerce registered a 20 percent comparable increase over the same period. We are especially pleased with the delivery of a strong gross margin expansion which has been a key focus, with margins increasing to 34.6 percent from 32.4 percent in the prior year,” Mr. Feldenkreis concluded.
Fiscal 2015 Second Quarter Results
Total revenue for the second quarter of fiscal 2015 was $204 million, a 4 percent decrease compared to $212 million reported in the second quarter of fiscal 2014. Revenues were impacted by planned exits of certain private and retailer exclusive branded programs. Increases in golf lifestyle apparel and Original Penguin offset reductions in women's sportswear.
During the second quarter of fiscal 2015, gross margin expanded to 34.6 percent as compared to 32.4 percent in the same period of the prior year. The 220 basis point expansion was the product of the Company's determination last year to focus growth on higher margin brands and higher margin channels of distribution. Gross margin expansion also reflected the impact of the Company's infrastructure rationalization program, which led to reduced logistics and other costs.
Selling, general and administrative expenses totaled $66.9 million as compared to $66.5 million in the prior year. Expenses included $1.4 million related to costs associated with the Company's infrastructure rationalization as well as additional investment in Europe associated with the introduction of Callaway to Europe and the expansion of Original Penguin across the Continent.
As reported under GAAP, the fiscal 2015 second quarter net loss was $1.6 million, or $0.11 net loss per share, compared to $2.8 million, or $0.19 net loss per share, in the second quarter of fiscal 2014. On an adjusted basis, the fiscal 2015 second quarter net loss per share was $0.08 as compared to an adjusted net loss per share of $0.15 in the second quarter of fiscal 2014. Adjusted net loss per diluted share excludes certain items as outlined in “Table 1”, Reconciliation of GAAP net loss/income and adjusted diluted earnings per share to adjusted net income and diluted earnings per share.
Balance Sheet and Business Update
Inventories decreased to $175 million from $207 million at year end, and $179 million at the end of the prior year period as the Company continues to focus on disciplined inventory management. The Company ended the second quarter with $73 million in cash and investments and no borrowings under its credit facility
The Company continued to benefit from its infrastructure rationalization program. Management and the Company's consultants completed the review of its supply chain earlier in August and will begin to implement certain recommended actions in the future quarters. The Company anticipates that the implementation will take 12-24 months as it prioritizes the recommendations and expects to realize operating margin improvements over that time frame.
Strategic Priorities for Fiscal 2015 to Enhance Profitability
As the Company looks to the second half of fiscal 2015, it is focused on the following priorities that position Perry Ellis to deliver sustainable growth in revenue and profits. These actions include directing the Company's resources on its highest return businesses and brands, and driving efficiencies across its operating platform.
The Company plans to enhance profitability include:
- Continue the strategic review of the Company's portfolio of brands with a goal to exit non-core, low growth brands and businesses. During the second quarter, the Company entered into eight new licensing agreements, and has exited twenty-three private and exclusive brands since implementing this initiative in fiscal 2014. The Company also completed the sale of its Jantzen brand for certain territories in Australasia to its Australian licensee.
- Drive efficiencies and generate cost savings through process enhancements. In the second quarter of fiscal 2015, the Company completed the consolidation of its domestic direct-to-consumer retail operations and together with our consultant, completed the strategic review of its supply chain operations. The Company anticipates that it will prioritize the recommendations and believes that it can realize significant operating margin improvement over that time frame.
- Drive international growth through both direct investment in North America and Europe as well as through strategic partnerships with licensees and other partners. At the end of the second quarter of fiscal 2014, the Company's international division represented 9.3 percent of total revenues. This percentage stood at 12.4 percent at the end of the second quarter of fiscal 2015 and is expected to further expand as the Company executes on its global expansion plans.
- Expand the direct-to-consumer global footprint. The Company expects to expand its brick and mortar presence and enhance the Original Penguin and Perry Ellis brands by leveraging the competency of its retail teams in the US and Europe, and through third party licensees.
- Continue to optimize its positioning and competency in the menswear arena through wholesale, retail and licensing of its core brands.
George Feldenkreis, chairman and chief executive officer of Perry Ellis International stated, “We are pleased to report improved operating performance during our second quarter as we continue to direct resources on our growth businesses, drive efficiencies across our operating platform and realize cost savings. Importantly, we continue to manage inventories and our balance sheet remains strong. While there is more work to do, we believe we have the right plan in place to create positive returns for shareholders.”
Fiscal 2015 Guidance
The Company continues to expect total revenues to be in a range of $910 to $920 million for its 2015 Fiscal year. Given the stronger performance in the second quarter, the Company now expects adjusted earnings per diluted share for fiscal 2015 in a range of $0.85 to $0.95 as compared to the previous guidance range of $0.80 to $0.95.
Perry Ellis International's collection of dress and casual shirts, golf sportswear, sweaters, dress pants, casual pants and shorts, jeans wear, active wear, dresses and men's and women's swimwear is available through all major levels of retail distribution. The Company, through its wholly owned subsidiaries, owns a portfolio of nationally and internationally recognized brands, including: Perry Ellis, Jantzen, Laundry by Shelli Sega, C&C California, Rafaella, Cubavera, Ben Hogan, Savane, Original Penguin by Munsingwear, Grand Slam, John Henry, Manhattan, Axist, and Farah. The Company enhances its roster of brands by licensing trademarks from third parties, including: Nike and Jag for swimwear, and Callaway, PGA TOUR, and Jack Nicklaus for golf apparel.
