Phoenix Footwear Group Net sales from continuing operations for the third quarter of fiscal
2007 decreased 5.0% to $26.0 million, compared to $27.3 million for the
third quarter of fiscal 2006. The decline was primarily attributable to
a 25% decrease in the Chambers business. Net income
after tax was $11.1 million, or $1.23 per diluted share and included a one-time after-tax gain of $14.1 million, or
$1.57 per diluted share, from the sale of the Royal
Robbins brand.
“The third quarter was encouraging as we made significant progress on our revitalization plan and delivered on our promises in several key areas,” commented Cathy Taylor, Phoenix Footwear's Chief Executive Officer. “Due to the successful sale of our Royal Robbins division we had a strong profit for the third quarter and cut our debt load by more than half. Investments in our organic growth initiatives resulted in noticeable performance improvements for several of our brands. We have also reorganized, hiring a number of key professionals and implementing management changes in the areas of finance, sourcing, product, logistics, customer service, planning and operations. We believe our new operational infrastructure positions us for improved performance as we enter the New Year.”
Cathy Taylor added, “During the quarter we drove strong top-line results in our Tommy Bahama unit, more than doubling quarter over quarter sales. We are continuing our investments in H.S. Trask and SoftWalk and both of these brands returned to positive sales growth during the quarter. Our overall top-line performance was hampered by the delay in orders from the Department of Defense, which has only recently begun to ramp-up with our new contract, and the lackluster sales in Chambers' mass retail channel. These shortfalls, combined with our inventory reduction plans and product process to market, placed pressure on our gross margins.”
Ms. Taylor concluded, “As we approach the end of the year, we foresee a very challenging retail environment. Accordingly, we are very aggressively managing our inventories and taking the necessary steps to position ourselves for success in the New Year. We are confident in the growth potential of our brands and excited about the anticipated addition of the new LEE® belts, accessories, and footwear license. We expect our improving inventory levels and the recent changes we have made to our footwear sourcing network, as well as our improved product process to market, will start translating into improved margins in the near future.”
The Company's Chambers Belt subsidiary has entered into a letter of intent with VF Jeanswear Limited Partnership to receive a license to manufacture belts, accessories and footwear with the LEE® brand name. The award of the license is subject to entering into a definitive agreement with LEE® which the Company expects to finalize in the fourth quarter.
Financial Results
Net sales from continuing operations for the third quarter of fiscal 2007 decreased 5.0% to $26.0 million, compared to $27.3 million for the third quarter of fiscal 2006. The decline was primarily attributable to a 25% decrease in our Chambers business and was partially offset by increases in our H.S. Trask, SoftWalk and Tommy Bahama brands with the growth in Tommy Bahama totaling 119%.
For the third quarter of fiscal 2007, the Company reported net income after tax of $11.1 million, or $1.23 per diluted share, on 9.0 million weighted-average shares outstanding. Net income for the third quarter of fiscal 2007 included a one-time after-tax gain of $14.1 million, or $1.57 per diluted share, from the July 2, 2007 sale of the Royal Robbins brand. For the third quarter of fiscal 2006, the Company reported net income of $343,000, or $0.04 per diluted share, on 8.2 million weighted-average shares outstanding. Net income for the third quarter of fiscal 2006 included net income of $717,000, or $0.09 per share, from the discontinued operations of the Royal Robbins brand.
Gross margin from continuing operations for the third quarter of fiscal 2007 was 22.0%, compared to 31.6% for the third quarter of fiscal 2006. The decrease in gross margin was primarily related to increased off-price sales and markdowns, and underabsorbed production costs.
Operating expenses were $9.2 million for the third quarter of fiscal 2007, compared to $8.6 million for the third quarter of fiscal 2006. Operating expenses from continuing operations as a percentage of net sales were 35.4% in the third quarter of fiscal 2007, compared to 31.5% in the third quarter of fiscal 2006. This increase was attributable to costs related to the hiring of a new CEO as well as increased spending on consulting and brand design, marketing and advertising.
For the nine months ended September 30, 2007, net sales from continuing operations were $83.5 million, compared to $84.9 million for the comparable prior-year period. The decline in net sales was primarily attributable to a 25% decrease in Tommy Bahama and a 19% decrease in H.S. Trask. The decrease in net sales was partially offset by a 15% increase in Altama and a 7% increase in Trotters.
Net income for the nine months ended September 29, 2007 was $10.5 million, or $1.17 per diluted share. Included in the fiscal 2007 nine-month period were a one-time after-tax gain of $14.1 million, or $1.57 per diluted share, from the sale of the Royal Robbins brand and net income of $774,000, or $0.09 per diluted share, from discontinued operations related to the Royal Robbins business unit. For the nine months ended September 30, 2006, the Company reported net income of $3.0 million, or $0.37 per diluted share. Included in the fiscal 2006 nine-month period was net income of $1.8 million, or $0.22 per diluted share, from discontinued operations related to the Royal Robbins business unit. Additionally, the nine month period ended September 30, 2006 included a net one-time gain associated with the Altama purchase price adjustment of $1.5 million partially offset by a severance charge. Weighted-average shares outstanding for the two periods were 9.0 million and 8.2 million, respectively.
Balance Sheet
As of September 29, 2007, Phoenix Footwear's cash and cash equivalents totaled $0.5 million and working capital was $10.0 million.
As of September 29, 2007, the Company had $20.4 million in bank debt, including its outstanding line of credit. The Company is not in compliance with its financial covenants under its existing credit agreement which have not been revised to reflect the Royal Robbins sale. At this time the Company has not requested a waiver for its default, and is seeking a replacement facility.
Other Information
In addition, Phoenix Footwear today announced that Robert Gunst and John Robbins have tendered their resignations as members of the Company's Board of Directors. Mr. Gunst and Mr. Robbins joined Phoenix Footwear's Board of Directors in August 2006 and May 2004, respectively.
“We appreciate the valuable service that Robert and John have provided to Phoenix Footwear and we wish them well,” said Jim Riedman, Phoenix Footwear's Chairman.
Phoenix Footwear Group, Inc.Consolidated Condensed Statement of Operations(In thousands)
For the Quarter Ended(Unaudited)
September 29 September 302007 2006
Net sales $25,977 100.0% $27,337 100.0%Cost of goods sold 20,272 78.0% 18,705 68.4%
Gross profit 5,705 22.0% 8,632 31.6%
Operating expenses:Selling and administrativeexpenses 8,819 33.9% 8,113 29.7%Non cash 401k stock grantcompensation 133 0.5% 161 0.6%Amortization 280 1.1% 310 1.1%Other (income) expense, net (30) - % 14 - %Total operating expenses 9,202 35.4% 8,598 31.5%
(Loss) Income from operations (3,497) -13.5% 34 0.1%
Interest expense 663 630
(Loss) income before incometaxes and discontinuedoperations (4,160) -16.0% (596) -2.2%
Income tax benefit (1,165) (222)
(Loss) income beforediscontinued operations (2,995) -11.5% (374) -1.4%
Income from discontinuedoperations, net of tax 14,057 54.1% 717 2.6%
Net income $11,062 42.6% $343 1.3%
Earnings (loss) per commonshare:
BasicContinuing operations $(0.37) $(0.05)Discontinued operations 1.75 0.09Net earnings $1.38 $0.04
DilutedContinuing operations $(0.37) $(0.05)Discontinued operations $1.57 $0.09Net earnings $1.23 $0.04Weighted-average sharesoutstanding:Basic 8,044,871 7,927,306Diluted 8,974,018 8,203,837
