Phoenix Footwear net sales for the third quarter totaled
$23.2 million versus $11.0 million for the third quarter of 2003, an increase of $12.2 million or 110.9%. The Company's financial results for the third quarter of 2004 resulted in pre-tax income of $2.7 million, compared to a pre-tax income of $1.7 million in the third quarter of 2003. Net income per diluted share was $0.24 for the
third quarter ended September 25, 2004 as compared to net income per diluted share of $0.26 for the prior year quarter. Net income for the prior year quarter included a $285,000 non-taxable excise tax refund offset by $109,000
in acquisition and corporate relocation costs or $0.05 per diluted share.
Gross margin for the current year third quarter was 42.4%, compared to 41.3%
for the third quarter in 2003.
The per share amounts for the third quarter ended September 25, 2004
include the effect of 771,869 shares of common stock issued by Phoenix in its
2003 brand acquisitions as well as the effect of 2.7 million shares issued in
connection with its 2004 stock offering and acquisition of the Altama brand.
James R. Riedman, Chairman, commented, “Our third quarter results reflect
the significant expansion of our company during the past year, including the
completion of three major acquisitions, which resulted in a doubling of our
revenues. We remained solidly profitable during the quarter with gross
margins, operating income and net income all increasing over the prior year.
Our EPS was in line with our revised expectations, reflecting softness at our
Trotters brand and changes in the quantity and timing of product deliveries at
our Altama unit.”
Richard White, Chief Executive Officer, commented, “We are confident in
our ability to address the Trotters brand performance and anticipate receiving
clarity on Altama's government contracts in early 2005. We have made good
progress on the integration of Altama since the acquisition closed this past
July, as we continue to focus on expanding the unit's revenue streams in both
the commercial and DOD markets. In addition, we have completed the redesign
and repositioning of our H.S. Trask line and we are pleased with the initial
response to our product going into 2005. In fact, H.S. Trask recently entered
into a new relationship with The Walking Company, whereby the H.S. Trask line
will be featured in most of The Walking Company's 73 stores. Looking ahead,
the majority of the brands we owned for all of 2004 are demonstrating
increased bookings for 2005 and we are committed to growing the Company
organically, while maintaining our margins and profitability.”
Results for the Third Quarter Ended September 25, 2004
Net sales for the third quarter ended September 25, 2004 increased $12.2
million, or 110.9%, to $23.2 million from $11.0 million for the third quarter
of 2003. This increase includes $6.7 million of new revenue associated with
the Altama brand acquisition, completed during the third quarter. Excluding
Altama, Phoenix's Trotters, SoftWalk, H.S. Trask, and Royal Robbins brands
generated flat organic growth during the third quarter as compared to pro
forma net sales for these brands during the prior year quarter.
Gross margin in the third quarter was 42.4% of net sales, compared to
41.3% in the third quarter of 2003. The increase in gross margin was primarily
related to our 2003 brand acquisitions, an improved product sales mix and
reduced close-out sales. Selling, general and administrative expenses for the
third quarter of 2004 were $6.9 million or 29.8% of net sales, versus $3.0
million or 27.3% of net sales for the third quarter of 2003. This increase is
related to increased operating costs associated with supporting a higher sales
volume, our recently acquired brands and increased sales, design and
management compensation expenses.
During the third quarter of 2004, interest expense totaled $199,000,
compared to $61,000 in the comparable prior year period. This increase is
primarily related to increased acquisition and working capital debt associated
with our 2003 and 2004 brand acquisitions.
The Company's effective tax rate during the current quarter was 37%
resulting from a change in state tax apportionment ratios. The effective tax
rate during the third quarter ended September 27, 2003 was 31% due primarily
to an excise tax refund, which was non-taxable for income tax purposes.
Results for the Nine Months Ended September 25, 2004
Net sales for the nine months ended September 25, 2004 increased $27.9
million or 101.0%, increasing to $55.7 million from $27.8 million for the nine
months ended September 27, 2003. Excluding Altama, net sales for the Company's
Trotters, SoftWalk, H.S. Trask, and Royal Robbins brands increased 3.6% during
the nine-month period ended September 25, 2004, as compared to pro forma net
sales for these brands during the prior year period.
Gross margin for the nine months ended September 25, 2004 was 43.6% of net
sales, compared to 42.3% for the nine months ended September 27, 2003. The
increase in gross margin was primarily related to our 2003 brand acquisitions,
improved product sales mix and reduced close-out sales. Selling, general and
administrative expenses for the nine months ended September 25, 2004 were
$17.7 million or 31.9% of net sales, versus $8.5 million or 30.5% of net sales
for the nine months ended September 27, 2003. This increase was related to
increased operating costs associated with supporting a higher sales volume,
our recently acquired brands and increased sales, design and management
compensation expenses.
Interest expense amounted to $503,000 for the nine months ended September
25, 2004, compared to $513,000 for the nine months ended September 27, 2003.
The prior year period results included interest charges totaling $376,000
associated with the dissenting stockholders' litigation settlement.
BUSINESS OUTLOOK
The following statements are based on current information and
expectations, and actual results may differ materially. The Company can give
no assurances that such expectations will prove correct. These statements do
not include the potential impact of any mergers, acquisitions or other
business combinations that may be completed after October 28, 2004. The
Company makes these statements as of today and undertakes no obligation to
update this information based on actual results during the period or changes
in assumptions or estimates or other changes in the period. While it is
currently expected that these business outlook statements will not be updated
prior to the release of the Company's fourth quarter and fiscal 2004 earnings
announcement, the Company reserves the right to update the outlook for any
reason during the quarter, including the occurrence of material events.
Kenneth Wolf, Chief Financial Officer, commented, “We have revised our
financial guidance for 2004. We now expect overall revenues of $70 to $75
million for the full year 2004, compared to our prior guidance of $79 to $89
million. In addition we now expect full-year 2004 diluted EPS of $0.65 to
$0.70.”
Pro Forma Net Sales Pro Forma Net Sales
for the Nine Months for the Three Months
Ended September 27, 2003 Ended September 27, 2003
(in thousands) (in thousands)
(unaudited) (unaudited)Phoenix Footwear
Group, Inc. (Actual) $ 11,002 $27,7612003 Acquired Brands
(H.S. Trask & Co. and
Royal Robbins, Inc.,) 5,432 19,4762004 Acquired Brands
(Altama) 9,983 23,947Total Net Sales $ 26,417 $ 71,184
Phoenix Footwear Group, Inc
Consolidated Condensed Statement of OperationsFor the Quarter Ended
(Unaudited)
September 25, September 27,
2004 2003Net sales $23,176,000 100.0% $11,002,000 100.0%
Cost of goods sold 13,345,000 57.6% 6,463,000 58.7%Gross profit 9,831,000 42.4% 4,539,000 41.3%
Operating expenses:
Selling and
administrative expenses 6,907,000 29.8% 3,009,000 27.3%
Other expense, net 3,000 0.0% (184,000) -1.7%
Total operating
expenses 6,910,000 29.8% 2,825,000 25.7%Operating income 2,921,000 12.6% 1,714,000 15.6%
Interest expense 199,000 0.9% 61,000 0.6%
Earnings before
income taxes 2,722,000 11.7% 1,653,000 15.0%Income tax provision 994,000 507,000
Net earnings $1,728,000 7.5% $1,146,000 10.4%
Net earnings per share:
Basic $0.26 $0.28
Diluted $0.24 $0.26Shares outstanding:
Basic 6,666,000 4,066,000
Diluted 7,331,000 4,479,000
