As a result of several factors, including changes to the expected timing of contracts and product deliveries at Phoenix Footwear's Altama Footwear unit, and to a lesser extent, softness with the Company's Trotters brand, Phoenix Footwear will not meet its previous full year guidance of $1.00 – $1.10 per diluted share for 2004.
For the third quarter of 2004, the Company expects to report fully diluted GAAP EPS that is slightly below the $0.26 fully diluted GAAP per share reported for the third quarter of 2003, after giving effect to the 2.7 million newly issued shares associated with the Company's secondary offering and Altama acquisition, completed earlier this year. The Company expects to provide updated guidance for the full 2004 year when it reports third quarter results in October.
During the third quarter of 2004 the Company has experienced delays in anticipated shipments of Altama military boots to the sovereign nation of Brunei, as well as the Aberdeen Proving Grounds in Hartford County, Maryland. Shipments related to the Brunei contract are now expected to occur in October 2004, while shipments to Aberdeen Proving Grounds are pending subject to refunding of the military facility by the U.S. government.
In addition, Altama experienced delayed deliveries against orders for its Direct Molded Sole boots to the Department of Defense under its existing contract which expires September 30, 2004. During the current quarter, Altama also experienced production delays due to the temporary closure of its Puerto Rico manufacturing facility as a result of severe weather. Finally, during the third quarter, the Company's Trotters brand experienced lower sell through and reorder rates compared to previous quarters due to a soft market for the women's traditional footwear category, particularly with department store channels and poor consumer acceptance of the Fall product line.
James R. Riedman, Chairman, commented, “While we will still expect strong year-over-year growth in our 2004 fully diluted GAAP EPS, we are disappointed with our reduced outlook for the current year. We believe the delay in the shipments related to the Brunei and Aberdeen contracts, which caused the majority of the shortfall, are temporary in nature. In fact, the Aberdeen contract is a multi-order commitment that bodes well for future revenues and cash flows and we hope to have clarification on timing early in the fourth quarter.” During the third quarter the Company formalized the option extension of its Department of Defense contract through September 30, 2005; however, orders under this extension are not expected to be received until the early fourth quarter and there is no assurance of the ultimate number of combat boots that will be purchased under this extension. Mr. Riedman further stated, “With the recent appointment of Glen Becker to head Altama, we remain focused on our strategy to grow this business in the long-term, both from new contracts with the Department of Defense, as well as by further expanding the commercial market.”
Mr. Riedman continued, “We fully expect our remaining brands, including SoftWalk, Trask and Royal Robbins to report pro forma organic growth on a combined basis during the current quarter. We are confident in our ability to address the Trotter's brand performance. Overall, we believe we are well positioned to implement our strategy of building a portfolio of profitable and sustainable niche brands. Following several acquisitions during the past two years that more than tripled the size of the Company, our primary focus is on driving organic growth, while maintaining our margins and profitability.”
