Phoenix Footwear second quarter sales increased 10.6% to $15.4 million compared to $13.9 million, mainly due to revenue contributed by the recent acquisition of Altama footwear, which reported $3.5 million in revenue. This contribution was partially offset by a decline in Phoenixs other footwear brand sales.
Gross margin declined 710 basis points to 38.2% of sales, compared to 45.3% in 2004. Again, this was mainly due to the Altama brand gross margins, which are lower than the company's other branded products. The company also experienced a higher level of footwear close-out sales due to the unfavorable spring weather experienced across the country.
Operating expenses were 46.0% of sales, a 1,010 basis point increase versus 35.9% of net sales for 2004. This increase is related to increased legal, acquisition, marketing, and employee compensation in addition to operating costs associated with Altama. This caused a net loss of $1.0 million or 14 cents per diluted share during the second quarter compared to net income of $643,000 or 12 cents per diluted share last year.
The Altama acquisition seems to be the main factor dragging down PXG profits. Altama's net sales for the second quarter decreased 71.5% to $3.5 million, compared to net sales of $12.2 million for the second quarter of 2004, prior to PXGs acquisition of the brand. This is due to a “temporary cessation” in Department of Defense (DOD) deliveries. Shipments to the DOD resumed in the third quarter and the company expects Q3 sales to be in-line with late 2004 and early 2005.
SoftWalk posted a decline of 23.8% in net sales to $2.1 million, compared to net sales of $2.8 million last year. PXG management said they are seeing “encouraging third quarter bookings.” Trotters sales were down 44% to $2.9 million for the quarter.
Royal Robbins is the only brand showing significant growth for the year, although sales were flat at $5.2 million for the second quarter. For the entirety of the Spring season, Royal Robbins' sales grew by 17%. Phoenix management said that first and third quarters are typically the strongest periods, and early third quarter results are “encouraging.” Royal Robbins' travel related business also continues to grow and the brand continues to open new accounts, like Academy Sports.
In related news, Phoenix Footwear acquired Paradise Shoe Company, LLC. for an undisclosed amount. This acquisition gives PXG the exclusive license of the Tommy Bahama line of men's and women's footwear, hosiery, and belts. Paradise Shoe Company posted full-year sales of $20.5 million in 2004, and $11.8 million in the first six months of 2005. Michael Reina, former president of Paradise Shoe Company, has joined Phoenix Footwear as national sales manager of the unit, which will be known to the trade as Tommy Bahama Footwear.
