Phoenix Footwear reported sales dipped 8 percent to $17.3 million from $18.8 million, according to its 10K filed with the Securities & Exchange Commission. Its net loss shrunk to $1.7 million from $7.0 million a year ago.
During fiscal 2010, net sales of its Trotters product line increased by 2.2 percent while SoftWalk and H.S. Trask declined 5 percent and 65 percent, respectively.
In the first quarter of fiscal 2009, a substantial amount of H.S. Trask inventory was sold at below cost in order to generate cash flow and in an effort to purge slow moving and discontinued styles, generating net sales much greater than normal as a percentage of total sales. Net sales of the H.S. Trask brand made up approximately 4.4 percent of its consolidated net sales in fiscal 2010 compared to approximately 11.5 percent in fiscal 2009, resulting in a variance year over year of $1.4 million. During fiscal 2007 and fiscal 2008, the company invested in the redevelopment of this product line in an effort to leverage the favorable product positioning and western lifestyle image of the brand. During 2009 and 2010, the company said it was not able to execute against this plan for growth due to the severe national recession and its working capital constraints.
During fiscal 2011, it started pursuing the sale of the H.S. Task brand in light of its decision to focus its efforts and resources on its two primary brands, Trotters and SoftWalk.
To a lesser extent, sales were also adversely impacted by its working capital constraints during fiscal 2009.
Gross profit from continuing operations decreased by $418,000 to $4.9 million in fiscal 2010 compared to $5.3 million in fiscal 2009. Gross profit as a percentage of net sales, was consistent at 28 percent for fiscal 2010 as compared to fiscal 2009. Gross profit for SoftWalk decreased slightly to 27.1 percent in fiscal 2010 from 28.4 percent in fiscal 2009 primarily due to the decrease in sales. Gross profit for Trotters decreased by approximately 2.7 percent to 28.5 percent in fiscal 2010 compared to 31.2 percent in fiscal 2009, primarily due to increase in product costs. Gross profit for H.S. Trask increased significantly to 36 percent in fiscal 2010 compared to 14.4 percent in fiscal 2009 as a result of fewer close out sales, however this increase did not have a significant impact on total gross profit as gross profit dollars of H.S. Trask comprised only about 6 percent of the total gross profit dollars in fiscal 2010 and fiscal 2009.
Total operating expenses from continuing operations decreased $3.5 million, or 29 percent, to $8.5 million in fiscal 2010 compared to $12.0 million in fiscal 2009.
Selling, general and administrative expenses, or SG&A, decreased $2.5 million, or 22 percent, to $8.5 million in fiscal 2010 compared to approximately $11.0 million in fiscal 2009. SG&A as a percentage of net sales was 49 percent for fiscal 2010, compared to 58 percent for fiscal 2009. The decrease results from a significant restructuring effort aimed at driving efficiency and cost control throughout the organization that was implemented primarily during the first quarter of fiscal 2009.
Interest expense from continuing operations decreased $102,000, or 18 percent, to $468,000 in fiscal 2010 compared to $570,000 for fiscal 2009. During fiscal 2010, interest expense was related to its revolving line of credit and term loans with First Community Financial and Gibraltar Business Capital, the amortization of the associated deferred financing costs and $113,000 of debt issuance costs written off as a result of the early payment of its revolving credit facility and term loan with First Community Financial as discussed in Note 6 of the Consolidated Financial Statements.
Interest expense during fiscal 2009 included the write off of $541,000 in debt issuance costs related to the fiscal 2009 modification and subsequent payoff of the revolving line of credit with our then lender, Wells Fargo. Interest incurred on this former revolving line of credit has been included in discontinued operations.
During the fourth quarter of fiscal 2010, the company entered into an exclusive distribution agreement with a third party to distribute its Trotters and SoftWalk branded footwear and related products in Canada and as a result plan to cease operating its PXG Canada subsidiary as soon as practicable. As a result, for consolidated financial statement reporting purposes, commencing with the fourth quarter of fiscal 2010, it began reporting PXG Canada as discontinued operations.
Earnings from discontinued operations in fiscal 2010 were $2.3 million compared to a loss of $1.8 million in fiscal 2009. Earnings per share from discontinued operations were $0.28 for fiscal 2010 compared to loss per share of $0.21 for fiscal 2009.
