Phoenix Footwear Group, Inc. reported net sales increased 15.6% to $11.0 million for the third quarter ended September 27, 2003 versus $9.5 million for the third quarter of 2002. The increase in net sales for the third quarter of 2003 is primarily a result of the H.S. Trask and Ducks Unlimited footwear lines that were acquired on August 7, 2003.
Gross Profit for the third quarter increased to $4.5 million as compared to $3.8 million for the prior year quarter, an increase of 18.9%.
The Company's financial results for the third quarter of 2003 resulted in net income of $1.1 million. Net income was impacted as a result of a $285,000 excise tax refund associated with the 2001 Penobscot pension plan reversion, offset by expenses totaling $109,000 related to the H.S. Trask & Co. acquisition and corporate relocation costs. Net income per diluted share was $0.26 for the current quarter and included $0.05 per share from the excise tax refund, offset by acquisition and corporate relocation costs. Net income per diluted share for the comparable prior year quarter was $0.14 and included ($0.03) per share in asset impairment charges.
Net income per diluted share was $0.20 for the nine month period ended September 27, 2003 and included ($0.26) per share in litigation settlement, acquisition, and corporate relocation costs totaling $1.9 million, offset by a $285,000 excise tax refund. Net income per diluted share for the comparable prior year period was $0.39 and included ($0.03) per share in asset impairment charges.
The per share amounts for the quarter and nine months ended September 27, 2003 include the weighted average share effect of the 699,980 shares of newly issued common stock associated with the H.S. Trask & Co. acquisition. Additionally, all per share amounts reflect the Company's 2 for 1 stock split which was effective May 22, 2003.
Greg A. Tunney, President and COO, commented, “Our third quarter revenue growth reflects the addition of the H.S. Trask(R) and Ducks Unlimited(R) brands during the quarter, offset by the soft environment in the footwear market. However, due to our strict emphasis on product discipline, inventory management and cost controls we were able to maintain a healthy 41% gross profit margin. With the overall retail environment showing improvement, we are optimistic that our organic sales growth can rebound during the fourth quarter and our underlying business operations are positioned to generate solid earnings growth for the full year.”
James R. Riedman, Chairman and CEO, commented, “We continue to make notable progress in acquiring complimentary footwear and apparel companies that are expected to increase our revenue and profit growth potential. During the quarter, we closed on the acquisition of H.S. Trask & Co., marking our entry into the men's casual footwear market. We also expect to further strengthen our brand portfolio through our planned acquisition of Royal Robbins, Inc., which is expected to close in the current fourth quarter. The addition of Royal Robbins(R) would provide us with another growth driver, by adding a complete line of classic, high-quality men's and women's outdoor clothing to the Phoenix Footwear umbrella.”
Net sales for the quarter ended September 27, 2003 increased 15.6% to $11.0 million as compared to $9.5 million for the third quarter of 2002. Excluding sales from the H.S. Trask(R) and Ducks Unlimited(R) lines, net sales for the third quarter were $9.5 million, comparable with the third quarter of 2002.
Gross profit in the third quarter of 2003 increased 18.9% to $4.5 million or 41.3% of net sales as compared to $3.8 million or 40.1% of net sales in the third quarter of 2002. The improvement in gross margin as a percentage of net sales primarily relates to an improved product sales mix and a reduction in the volume of closeout sales.
Selling, general and administrative expenses for the third quarter of 2003 were $3.0 million or 27.3% of net sales, versus $2.6 million or 27.5% of net sales for the third quarter of 2002. This increase was primarily related to increased marketing and advertising expenses, increased employee compensation and benefit costs, and occupancy costs associated with the Company's new West Coast operations.
During the third quarter of 2003, interest expense amounted to $61,000, compared to $73,000 in the comparable prior year period. The decrease is a result of lower interest rates and average outstanding indebtedness during the current quarter as compared to the prior year period.
The effective tax rate during the third quarter ended September 27, 2003 was 31% due primarily to an excise tax refund, which is non-taxable for income tax purposes.
Net sales for the nine months ended September 27, 2003 decreased 3.5% to $27.8 million as compared to $28.8 million for the nine months ended September 30, 2002. Included in the net sales for the nine months ended September 27, 2003 are $1.5 million in sales from the H.S. Trask(R) and Ducks Unlimited(R) footwear lines which were acquired on August 7, 2003. Excluding sales from the H.S. Trask(R) and Ducks Unlimited(R) lines, net sales for the nine months ended September 27, 2003 decreased $2.5 million or 8.7% compared to the nine months ended September 30, 2002. This decrease was primarily due to depressed retail and economic conditions.
Gross profit for the nine months ended September 27, 2003 increased 9.4% to $11.7 million or 42.3% of net sales as compared to $10.7 million or 37.3% of net sales for the comparable prior year period. The improvement in gross margin as a percentage of net sales primarily relates to an improved product sales mix and a reduction in the volume of closeout sales.
Selling, general and administrative expenses for the nine months ended September 27, 2003 were $8.5 million, or 30.5% of net sales, versus $7.6 million, or 26.5% of net sales for the comparable prior year period. This increase was primarily due to increased marketing and advertising expenses, employee compensation and benefit costs, and increased occupancy costs associated with the Company's new West Coast operations.
Interest expense for the nine months ended September 27, 2003 totaled $513,000 and included interest charges of $376,000 related to previously disclosed dissenting shareholders' litigation. Without these interest charges, interest expense would have been $137,000 as compared to $408,000 in the prior year period. The decrease is a result of lower interest rates and average outstanding indebtedness during the current nine-month period as compared to the prior year period.
In accordance with the Company's stock repurchase program approved by its Board of Directors in May 2002, the Company repurchased approximately 57,800 shares during the nine month period ended September 27, 2003 at an average purchase price of $3.47. The Company did not repurchase any shares during the third quarter ended September 27, 2003.
Phoenix Footwear Group, Inc.
Consolidated Condensed Statement of Operations
For the Quarter ended
(Unaudited)
September 27, 2003 September 30, 2002
Net sales $11,002,000 100.0% $9,521,000 100.0%
Cost of goods sold 6,463,000 58.7% 5,703,000 59.9%
Gross profit 4,539,000 41.3% 3,818,000 40.1%
Operating expenses:
Selling and administrative
expenses 3,009,000 27.3% 2,621,000 27.5%
Other expense, net (184,000) -1.7% 205,000 2.2%
Total operating expenses 2,825,000 25.7% 2,826,000 29.7%
Income from operations 1,714,000 15.6% 992,000 10.4%
Interest expense 61,000 0.6% 73,000 0.8%
Income before income taxes 1,653,000 15.0% 919,000 9.7%
Income tax provision 507,000 368,000
Net Income $1,146,000 10.4% $551,000 5.8%
Earnings per common share:
Basic $0.28 $0.16
Diluted $0.26 $0.14
