Phoenix Footwear reported operating income for 2012 totaled $513,000 compared to an operating loss of $1.0 million for the prior year. Sales rose 5.2 percent to $16.7 million from $15.9 million.

Gross margin as a percentage of net sales improved to 37.5 percent or 240 basis points from 35.1 percent.

Net loss from continuing operations decreased to $437,000 or $0.06 per share compared to net loss of $1.7 million or $0.21 per share in fiscal 2011.

For the year ended December 29, 2012 (or fiscal 2012), net sales increased to $16.7 million or 5.2 percent compared to $15.9 million for the year ended December 31, 2011 (or fiscal 2011). Net sales for the companys SoftWalk® and Trotters® brands grew by 11.6% and 2.0% in fiscal 2012. The improvement in net sales for the year was achieved with a 9.7% increase in the average unit wholesale price on an increased unit sales volume of full priced goods of 2.9%, together with a 27% decrease in the sales volume of closed-out goods.

The gross margin improved 240 basis points to 37.5% from 35.1% when compared to the prior fiscal year. The enhanced gross margin was produced on a higher unit sales volume of full priced goods coupled with an increase in the average unit wholesale of 9.7% and a decrease in the sales volume of closed-out inventory reduced by an increase in the average standard cost per unit.

Selling, general and administrative expenses or SG&A, decreased $835,000 or 12.7% to $5.8 million in fiscal 2012 compared to $6.6 million in fiscal 2011. SG&A as a percentage of net sales for fiscal 2012 was 34.4% compared to 41.4% for fiscal 2011. The decrease in SG&A was mostly due to the reduction in legal, rent and other public company costs incurred during the first quarter of fiscal 2011 associated with the completion of a restructuring plan initiated during the second half of fiscal 2010 and an overall lower operating cost structure.

Interest expense for fiscal 2012 totaled $927,000 compared to $720,000 for fiscal 2011. On July 30, 2012, the company refinanced its credit facilities reducing its borrowing costs and increasing the facilities size. As a result of the refinancing, the company incurred $220,900 of additional expenses associated with the accelerated expensing of prepaid financing costs and other fees paid with the early termination of the prior loan agreement.

The company reported a loss from continuing operations of $437,000 or $0.06 per share for the fiscal year ended December 29, 2012, compared to loss from continuing operations of $1.7 million or $0.21 per share for the fiscal year ended December 31, 2011.

Waiver and Amendment of Lender Covenants

On July 30, 2012, the company entered into a new Loan and Security Agreement (the Loan Agreement) with AloStar Bank of Commerce (AloStar) and Subordinated Loan Agreement with Gibraltar Business Capital, LLC (Gibraltar). The Loan Agreement and Subordinated Loan Agreement include various financial and other covenants, with which the company has to comply in order to maintain borrowing availability and avoid penalties including maintaining required minimum EBITDA amounts.

As of December 29, 2012, the companys rolling 12 month EBITDA of $771,000 was not in compliance with the minimum EBITDA covenant of $850,000 required in the Loan Agreement and Subordinated Loan Agreement.

On February 27, 2013 and March 4, 2013, the company entered into the First Amendment to the Subordinated Loan Agreement with Gibraltar and the First Amendment to the Loan Agreement with AloStar, waiving the companys non-compliance with the required minimum EBITDA covenant of those agreements as of December 29, 2012 and amending the required minimum EBITDA covenant for each of the first, second and third quarters of fiscal 2013.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, CA, owns the Trotters and SoftWalk brands.