Spy Inc. continued on its turn around by reporting sharply lower operating losses in both the fourth quarter and year ended Dec. 31 thanks in large part to a much reduced level of close-outs sales of its sunglasses.
“With continued strong Spy brand sales, and an annual growth of 13 percent for 2012 over 2011, we are happy to have achieved our seventh consecutive quarter of year-over-year growth of Spy brand products, said Michael Marckx, President and CEO. This is very encouraging for our efforts in 2013, as we have major initiatives lined up, the most important of which is Spy Happy Lens — the most innovative product Spy has ever launched. These results also again suggest the strength of our renewed brand positioning and strategies, as also evidenced by increased market share driven by unique new product collections. We are also pleased that our efforts have really paid off with improved gross margins compared to the fourth quarter and annual results of last year. Top line results were achieved despite significantly lower operating expenses, which in the fourth quarter of 2012 were 29 percent lower than the fourth quarter of 2011 and sequentially 25 percent better than the third quarter of 2012. These factors together with our strong annual growth, nicely improved margins, and substantially lower spending, are the hallmarks of a strengthening brand.”
Spys annual loss from operations was $5.0 million in 2012 compared to $9.4 million in 2011, or a 47 percent improvement. The loss from operations was $0.6 million in the fourth quarter of 2012 compared to $3.0 million in the fourth quarter of 2011, or an improvement of $2.4 million.
The improvement in annual loss from operations in 2012 compared to 2011 was due to increased gross margins as a percent of sales on higher sales volumes and significantly reduced operating expenses. The significant improvement in the loss from operations in the fourth quarter of 2012 compared to the fourth quarter 2011 was due to increased gross margins as a percent of sales related to a reduction in lower margin closeout sales and reduced licensed brand sales due to being discontinued and selling a more favorable product mix in 2012, and substantially reduced operating expenses.
Spy incurred an annual net loss of $7.2 million in 2012 compared to a net loss of $10.9 million in 2011. We incurred a net loss of $1.2 million in the fourth quarter of 2012 compared to a net loss of $3.4 million in the fourth quarter of 2011. The primary difference between the net loss and loss from operations was due to interest expense on long-term debt due to Costa Brava Partnership III, LP, Spys largest shareholder, which beginning in 2012 is “paid in kind” by being added to the outstanding principal balance rather than being paid in cash.
In December 2012, Spy borrowed an additional $0.5 million of convertible debt from Harlingwood (Alpha), LLC. Harlingwood is a significant shareholder of the company’s common stock.
SPY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Thousands, except per share amounts)
|Three Months Ended December 31,||Year Ended December 31,|
|Cost of sales||4,545||5,669||19,189||19,004|
|Sales and marketing||2,552||3,469||13,814||12,330|
|General and administrative||1,211||2,213||6,285||8,460|
|Shipping and warehousing||159||165||767||619|
|Research and development||222||110||587||555|
|Other operating expense||–||(138||)||–||1,814|
|Total operating expenses||4,144||5,819||21,453||23,778|
|Loss from operations||(577||)||(3,008||)||(5,033||)||(9,427||)|
|Other income (expense):|