Phoenix Footwear Group, Inc. revealed in its consolidated results for the third quarter ended Sept. 27, 2008 that net sales decreased 16.4% to $18.7 million, compared to last year's $22.3 million. The company experienced sales declines across all of its brands, which it said reflects the challenging retail environment.
- Gross margin expanded 780 basis points to 32.8%, compared to 25.0% for the third quarter of 2007. The increase was due to strong gross margin growth in the company's Trotters and SoftWalk divisions.
- Operating expenses decreased 3.7% to $8.0 million, or 43% of net sales, compared to $8.3 million, or 37% of net sales, for the third quarter of fiscal 2007. The decrease in operating expenses is primarily attributable to a decrease in headcount in several corporate departments along with tight expense control at the divisional level.
- Operating loss narrowed to $1.9 million, compared to $2.7 million a year ago.
- Net loss from continuing operations was $2.1 million, or 25 cents per share, on 8.2 million weighted-average shares outstanding, compared to net loss of $1.8 million, or 22 cents per share, from continuing operations a year ago.
Jim Riedman, Phoenix Footwear's chairman, commented, “As the retail
environment continued to be impacted by mounting economic concerns, we
focused our efforts on making improvements in the controllable aspects
of our business. We improved our operating efficiencies and expanded
gross margins, resulting in a lower operating loss compared to a year
ago. In addition, we ended the quarter with significantly reduced
inventory and debt levels. However, as we previously reported, this
progress was offset by deteriorating consumer spending, resulting in
disappointing sales and a loss for the third quarter.”
“Due to the unsettled capital markets and deepening retail challenges,
as announced in a separate press release we issued today, our Board of
Directors has formed a Special Committee which has engaged BB&T
Capital Markets, a division of Scott & Stringfellow, Inc., as its
financial advisor, to consider strategic alternatives, including
proposals for the purchase of the company or one or more of its
divisions, in an effort to enhance stockholder value,” continued Riedman. “In the meantime,
we will continue to diligently execute our strategic plan and
capitalize on market opportunities.”
“The extremely challenging economic conditions have negatively impacted our distribution channels, slowed down re-order rates and resulted in weaker than expected performance for all of our brands,” commented Cathy Taylor, Phoenix Footwear's CEO. “While the recent events in the industry have demonstrated that consumer spending is likely to remain soft through the fourth quarter and into 2009, we believe each of our divisions is well positioned to return to positive growth once the retail climate improves. We remain committed to developing quality products and continuing to build strong relationships with our retail partners.”
Recent Operating Highlights by Brand
- Tommy Bahama – RELAXED Vulcanized programs and sandal product will be in the market place for the first time by the end of the fourth quarter and available across most channels, including a broad selection at Nordstrom.
- H.S. Trask – The company has partnered with David Stoecklein, known as “Photographer of the American West,” to collaborate on H.S. Trask's Fall 2008 catalog, web site and promote the brand. The launch of a new H.S. Trask web site is scheduled for late November, while a new catalog will be ready for the holiday season. H.S. Trask's new Fall 2008 products will be in stores by the end of November – beginning of December.
- Trotters – During the fourth quarter, the company plans to open additional retail doors at Nordstrom in two regions and expand its distribution in Von Maur for Spring 2009. Additionally, the company is going to launch a new web site for Trotters in December and establish a new external online partnership with Bon-Ton.
- SoftWalk – Re-order rates continue to be strong and the company is in a solid inventory position to support future sales. In addition to a new web site for SoftWalk to be launched in December the company is going to expand its external online relationship with Bon-Ton. For Spring 2009, the company plans to start selling its new opened up sandal packages in Nordstrom.
- Chambers – Men's and Boy's mass business is ahead of plan. The company will be rolling out its Women's business in Guess stores.
First Nine Months of 2008 Results
- Net sales from continuing operations decreased 8% to $58.6 million, compared to $63.5 million for the first nine months of fiscal 2007. The net sales decrease was attributable to lower re-order rates across all divisions along with push outs of orders with key retailers in the company's H.S. Trask, Tommy Bahama, and Chambers divisions.
- Gross margin expanded 200 basis points to 34.4%, compared to 32.4% for first nine months of 2007. The improvement in gross margin was primarily attributable to strong gross margin growth in the company's Trotters and SoftWalk divisions.
- Operating expenses decreased 9% to $23.3 million, or 40% of net sales, compared to $25.5 million, or 40% of net sales, for the first nine months of fiscal 2007. The decrease was attributable to a decrease in headcount in several corporate departments along with tight expense control at the divisional level.
- Operating loss narrowed to $3.1 million, compared to $4.9 million a year ago.
- Net loss from continuing operations was $4.6 million, or 56 cents per share, on 8.1 million weighted-average shares outstanding. This compares to net loss of $3.4 million, or 43 cents per share, from continuing operations for the first nine months of fiscal 2007.
Balance Sheet and Liquidity
As of Sept. 27, 2008, tangible net worth totaled $15.6 million, or $1.87 per share. The company's bank debt, net of cash, totaled $9.4 million. As of Sept. 27, 2008, the company had $14.0 million in working capital, an increase of $4.0 million from one year ago.
As of Sept. 27, 2008 the company failed to meet its financial covenants with its bank. Phoenix is having ongoing discussions with the bank about a replacement facility consistent with the company's reduced funding needs. There is no assurance, when or if, an amended or new facility will be provided by the bank.
Suspension of Financial Guidance
Due to the unusual softness at retail and its impact on the business, the company does not expect to achieve its previously issued financial guidance for fiscal 2008. As a result, the company is suspending its financial guidance for fiscal 2008.
Phoenix Footwear Group, Inc.
Consolidated Condensed Statement of Operations
(In thousands, except per share data)
For the Three Months Ended
(Unaudited)
September 27, September 29,
2008 2007
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Net sales $18,669 100.0% $22,319 100.0%
Cost of goods sold 12,538 67.2% 16,738 75.0%
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Gross profit 6,131 32.8% 5,581 25.0%
Operating expenses:
Selling and administrative
expenses 7,806 41.8% 7,998 35.8%
Non cash 401k stock grant
compensation 43 0.2% 113 0.5%
Amortization 150 0.8% 226 1.0%
Other (income) expense, net - -% (30) -%
------- ---- ------- ----
Total operating expenses 7,999 42.8% 8,307 37.2%
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Operating Loss (1,868) -10.0% (2,726) -12.2%
Interest expense, net 183 442
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Loss before income taxes and
discontinued operations (2,051) -11.0% (3,168) -14.2%
Income tax provision (benefit) 7 (1,391)
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Loss before discontinued
operations (2,058) -11.0% (1,777) -8.0%
(Loss) earnings from discontinued
operations, net of tax (60) -0.3% 12,839 57.5%
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Net (loss) earnings $(2,118) -11.3% $11,062 49.6%
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