Phoenix Footwear Group Inc. reported its fourth quarter net loss of $14.9 million or $1.83 per share, compared to a net loss of $11.89 million or $1.48 per share in the year ago quarter. The net loss from continuing operations for the quarter was $14.2 million or $1.74 per share, compared to a net loss from continuing operations of $12.8 million or $1.59 per share in the previous year quarter.
Included in the net loss for the fourth quarter of fiscal 2008 were $10.8
million in non-cash impairment charges compared to $6.0 million in non-cash
impairment charges for the same period in the previous fiscal year.
For the quarter, net sales from continuing operations totaled $16.5 million, down 15% from sales of $19.4 million in the year-ago quarter.
During the first quarter of fiscal 2009, the company took further steps to reduce its corporate overhead. This restructuring is expected to result in an estimated savings of greater than $2.0 million in annual payroll and related expenses.
For the
full 2008 fiscal year, net losses from continuing operations totaled $18.8
million, or $2.31 per share inclusive of the $10.8 million impairment charges.
In fiscal 2007, the company recorded a net loss from continuing operations of
$16.6 million, or $2.07 per share inclusive of the $6.0 million impairment
charges.
Net sales
in the company's accessories and footwear businesses declined during fiscal
2008 reflecting an unusually weak retail environment and an effort by the company's
major customers to reduce their inventories on hand.
The company's
accessories segment generated net sales of $37.4 million for fiscal 2008, a
$4.1 million decrease from $41.5 million for fiscal 2007, primarily
attributable to softness in the women's mass and specialty channels. Footwear
sales (including both the footwear and premium footwear segments) were $37.7
million for fiscal 2008, a decrease of $3.6 million from footwear sales of
$41.3 million in fiscal 2007. Net sales decreased in all primary footwear
distribution channels, including independent retailers, department stores and
catalog vendors, as the retail market continued to experience unprecedented
softness during the second half of fiscal 2008.
Gross
profits declined by $1.1 million for the 2008 fiscal year as the company's net
sales declined; gross margins, however, improved by two percentage points from
31% in fiscal 2007 to 33% in fiscal 2008. This improvement resulted from fewer
closeout sales during fiscal 2008 and the streamlining of the company's
sourcing operations during the latter half of fiscal 2007.
As a
result of aggressive inventory management, the company finished fiscal 2008
with net inventories of $18.0 million, a 10% reduction in inventories from the
prior fiscal year end level of $19.9 million.
“With
the economic headwinds, this past year was an especially challenging one,”
said Russell Hall, President and CEO of Phoenix Footwear Group, Inc. “We
are disappointed in our net sales decline and resulting net loss; however we
have made some important gains in managing our inventory and gross margins and
in restructuring and right sizing our business as detailed in our Annual Report
on Form 10-K for fiscal 2008 which we filed today with the SEC. Our
productivity improvements, combined with our new organizational structure,
position us to produce better results once retail conditions normalize.”
The company
has been in continuing default on its bank debt since September 27, 2008. As a
result of this and the fact that the company has had net losses for the past
two fiscal years, the company's independent registered public accountants have
included a going concern explanatory paragraph in their report on the company's
financial statements included in the company's Annual Report on Form 10-K for
the 2008 fiscal year that the company filed today with the Securities and
Exchange Commission. This announcement of a qualification is being made in
compliance with NYSE Alternext US company Guide Rule 610(b) requiring a public
announcement of the receipt of an audit opinion that contains a going concern
qualification and does not reflect any change or amendment to the consolidated
financial statements as filed. Further information regarding the going concern
qualification is contained in the company's Annual Report on Form 10-K referred
to above.
Strategic
Initiative Update
Phoenix
Footwear also provided the following update on its strategic initiatives to
return the company to profitability and reduce or eliminate its bank debt.
In
February 2009, the company terminated its Tommy Bahama license agreement. At
the same time, the company discontinued production and sales of Tommy Bahama
branded products other than pending orders and sales to Tommy Bahama Group to
fulfill a products purchase agreement. By shutting down the Tommy Bahama
footwear division, the company eliminated a division which incurred operating
losses of $2.4 million and $3.5 million during fiscal 2008 and fiscal 2007,
respectively. Additionally, the company is in the process of monetizing the
associated working capital and plans to use the resulting proceeds to reduce
its bank debt by an estimated $2.5 million. In the first quarter of fiscal
2009, the company will report the results of its Tommy Bahama business as
discontinued operations. In connection with this action, in the first quarter
of fiscal 2009, a pre-tax charge of between $680,000 and $830,000 will be
recorded.
During
the first quarter of fiscal 2009, the company took further steps to reduce its
corporate overhead. In addition to the 3 positions eliminated relating to Tommy
Bahama, 13 managerial and support positions were also eliminated. This
restructuring is expected to result in an estimated savings of greater than
$2.0 million in annual payroll and related expenses. In connection with this
action, in the first quarter of fiscal 2009, a pre-tax restructuring charge of
approximately $1.0 million for these activities will be recorded.
Recently,
Wrangler Apparel Inc. advised the company of its intent to directly enter the
accessories business and take in-house its Wrangler mass license business. In
the wake of this development, the company has decided to sell the Chambers
private label accessories business and certain assets. More specifically, the company
is negotiating with interested parties the terms of a sale transaction which
would include Chambers manufacturing equipment, certain Chambers inventory at
cost and certain intellectual property and customer relationships. The company
does not plan to include in the Chambers sale the division's accounts
receivables or Wrangler licenses. Upon closing a transaction, the company plans
to collect these receivables and proceeds and wind-down the divisions remaining
activities as the Wrangler licenses expire unrenewed.
The company
expects that the Tommy Bahama transaction and Chambers transaction would yield
sufficient net proceeds to extinguish its bank debt during fiscal 2009. Until a
Chambers transaction is agreed upon and entered into, the Company cannot
provide any assurance that a sale will occur or the ultimate amount of proceeds
that will result from it.
