Phoenix Footwear Group, Inc. reported that net sales for the first quarter increased 41.6% to $26.4 million compared to $18.6 million for the first quarter of 2004.
The company's financial results for the first quarter of 2005 resulted in net income of $1.2 million or 15 cents per diluted share compared to net income of $1.2 million or 24 cents per diluted share for the first quarter of 2004. The per share amounts for the first quarter ended April 2, 2005 include the effect of 2.7 million shares issued during fiscal 2004 in connection with the company's secondary offering and subsequent purchase of the Altama Delta Corporation, as well as a severance charge of 5 cents per diluted share related to a management restructuring in January of 2005.
Gross margin for the first quarter of 2005 was 40%, compared to 44% for the first quarter of 2004.
James R. Riedman, chairman, commented, “Our first quarter results trended as expected, highlighted by strong results at our Royal Robbins, SoftWalk and H.S. Trask brands, offset by softness at our Altama and Trotters units. Despite these inconsistent sales results, we continue to post solidly profitable financial returns from our portfolio. We are taking steps to address the issues at Altama and Trotters, while our other units are demonstrating continued momentum in the current quarter. In addition, we expect our pending acquisition of the Chambers Belt Company, which is scheduled to close in the second quarter, to increase our growth and profit potential in 2005 and beyond.”
Richard White, CEO, commented, “We are currently witnessing improving sales trends across most of our brands. We are benefiting from investments we made in the past year in our brands, notably H.S. Trask, which posted a 25% increase in sales during the quarter. Royal Robbins is also posting outstanding results, with sales increasing nearly 30% in the first quarter and fall bookings growing at a double-digit pace. As we complete our brand repositioning efforts, we expect strong growth from H.S. Trask, Royal Robbins and SoftWalk, while Trotters is expected to post flat sales results for the full year. Our Altama brand met our expectations during the first quarter, but is experiencing an unanticipated temporary slow down in Department of Defense (DOD) deliveries during the second quarter. This development will have an adverse effect on our operating results for the second quarter. Altama continues to execute on our plan of broadening its product line in order to more deeply penetrate commercial markets. New product categories include advanced tactical footwear for the public safety market and safety toe footwear for the military/industrial markets. We are optimistic the investments we are making in our businesses will lead to increased shareholder value.”
Results for the First Quarter Ended April 2, 2005
Net sales for the first quarter ended April 2, 2005 increased 41.6% to $26.4 million compared to $18.6 million for the first quarter of 2004. This increase includes $6.8 million of new revenue associated with the Altama brand acquisition, completed during the third quarter of 2004. Excluding Altama, sales grew 5.1% during the first quarter 2005 compared to the prior year quarter.
Gross margin in the first quarter of 2005 was 40% of net sales, compared to 44% in the first quarter of 2004. The decrease in the gross margin percentage was due to the addition of the Altama brand gross margins, which generate lower gross margins than the company's other branded products. Operating expenses for the first quarter of 2005 were $8.2 million, or 31% of net sales, versus $5.8 million, or 31% of net sales for the first quarter of 2004. This increase is related to additional operating costs supporting higher sales volume and the recently acquired Altama brand. Additionally, other expense, net includes severance and management restructuring charges totaling $610,000.
During the first quarter of 2005, interest expense totaled $432,000, compared to $170,000 in the comparable prior year period. This increase is primarily related to increased acquisition and working capital debt associated with prior years brand acquisitions and higher interest rates.
UNIT RESULTS
Royal Robbins:
First quarter 2005 net sales for Royal Robbins increased 29.2% to $8.7 million, compared to $6.7 million for the first quarter of 2004. The unit has increased its retail distribution points, and its products continue to sell very well. Royal Robbins currently possesses a strong fall pre-book position. The company expects the brand to continue posting strong growth in 2005.
SoftWalk:
SoftWalk posted net sales for the first quarter of 2005 of $4.2 million, a 5.8% increase over $4.0 million in the first quarter of 2004. SoftWalk continues to post solid results, benefiting from repositioning in 2004, which resulted in an expanded product offering and increased retail distribution. In addition, the unit's Strol men's line introduction is off to an encouraging start. Strol products will begin shipping in the third quarter of 2005. We expect SoftWalk to post positive sales growth for the year.
Trotters:
First quarter 2005 net sales for Trotters decreased 27.8% to $4.5 million, from $6.3 million in the first quarter of 2004. The decrease in first quarter sales is attributable to repositioning efforts, as the brand closed out inventory and focused redesign efforts on the line's conservative attributes. The company is encouraged by the acceptance of the redesigned products at retail thus far, although we expect flat growth for the brand for the full year.
H.S. Trask:
Net sales for H.S. Trask in the first quarter of 2005 increased 24.8% to $2.0 million, from $1.6 million in the first quarter of 2004. This increase in sales reflects success in rebuilding and repositioning the H.S. Trask line. Bolstered by an expanded sales force, H.S. Trask's new product is performing well at retail and the brand is shipping significant orders for its newly launched women's product line. The brand opened over 25 new independent retail accounts in the first quarter. The unit replaced its Ducks Unlimited licensed product line with the Phoenix-owned Colter Creek brand, which should lead to better margins in the price-value segment. Future orders for H.S. Trask are tracking up and we expect brand momentum to accelerate in 2005, resulting in significant organic growth for the year.
Altama:
Altama's net sales for the first quarter of 2005 decreased 43.2% to $6.8 million, compared to net sales of $12.0 million for Altama's three months ended April 3, 2004, prior to the acquisition of the brand. During the first quarter Altama received orders from the DOD consistent with its 2005 forecast, but the DOD has delayed acceptance of the ordered products until the third quarter of 2005. This will result in a decline in production efficiency and a reduction in anticipated revenue from the DOD during the second quarter. The company believes that this slow down is a timing issue isolated to the second quarter and that the DOD order and delivery flow which it had originally anticipated for the year will resume in the third quarter. During the first quarter, Altama continued efforts to expand its non-DOD business, including hiring new sales representatives focused on the commercial market, and previewing the public safety footwear line at the February, 2005 WSA Show. The technically advanced tactical boots are scheduled to begin shipping in the fourth quarter.
2005 BUSINESS OUTLOOK
The company's previous guidance for fiscal 2005 will be impacted by the developments at Altama during the first quarter and the consummation of the pending Chambers Belt acquisition. The company expects the Chambers Belt acquisition, which is subject to closing conditions, to be accretive to earnings in fiscal 2005. The company plans to update its guidance for full fiscal 2005 following the conclusion of the Chambers Belt acquisition.
Phoenix Footwear Group, Inc.
Consolidated Condensed Statement of Operations
For the Quarter Ended
(Unaudited)
April 2, March 27,
2005 2004
Net sales $26,400,000 100% $18,638,000 100%
Cost of goods sold 15,842,000 60% 10,492,000 56%
Gross profit 10,558,000 40% 8,146,000 44%
Operating expenses:
Selling and administrative
expenses 7,545,000 29% 5,811,000 31%
Other expense, net 613,000 2% 34,000 0%
Total operating
expenses 8,158,000 31% 5,845,000 31%
Income from operations 2,400,000 9% 2,301,000 12%
Interest expense 432,000 170,000
Income before income taxes 1,968,000 7% 2,131,000 11%
Income tax provision 787,000 895,000
Net Income $1,181,000 4% $1,236,000 7%
Earnings per common share:
Basic $0.16 $0.27
Diluted $0.15 $0.24
