Spy Inc.’s Sales Grow 17 Percent Despite Tough Winter Market

Total net sales increased by $2.6 million, or 10 percent, to $27.5 million for the nine months ended Sept. 30, 2012, compared with total net sales of $24.9 million for the nine months ended Sept. 30, 2011.

 

Sales of core Spy brand products increased by $1.4 million, or 17 percent, to $9.8 million for the quarter ended Sept. 30, 2012, compared with core Spy brand sales of $8.4 million during the quarter ended Sept. 30, 2011. Other sales of approximately $100,000 during the quarter ended Sept. 30, 2012, consisted of licensed brand products which are no longer a focus of the company, compared with licensed product sales of $800,000 during the quarter ended Sept. 30, 2011.

Sales of core Spy brand products increased by $3.9 million, or 17 percent, to $27.1 million for the nine months ended Sept. 30, 2012, compared with core Spy brand sales of $23.2 million during the nine months ended Sept. 30, 2011. Other sales were $400,000 during the nine months ended Sept. 30, 2012, consisting of licensed brand products which are no longer a focus of the Company, compared with licensed product sales of $1.7 million during the nine months ended Sept. 30, 2011.

“With strong Spy brand sales growth of 17 percent for third quarter of 2012 over 2011, building on the huge Spy brand growth rate of 25 percent for the third quarter of 2011 over 2010, we are happy to have achieved our sixth consecutive quarter of year over year growth of Spy brand products. We feel this once again demonstrates the strength of our renewed brand positioning and exciting new product collection,” said Michael Marckx, president and CEO. “We are especially pleased that we were able to grow our North American snow goggle and sunglass businesses because of such a poor snow season last year that we believe caused many of our retailers to have relatively high inventory levels going into this 2012 fall snow goggle buying season.”

The company incurred a net loss of $1.8 million during the quarter ended Sept. 30, 2012, which was significantly lower than the net loss of $3.0 million during the quarter ended Sept. 30, 2011. The reduced loss during the quarter ended Sept. 30, 2012 was primarily due to increased gross margin.

 

Total operating expenses were slightly lower during the quarter ended Sept. 30, 2012 compared to 2011; with lower general and administrative expenses due to the level of legal and consulting expenses in 2011 associated with the restructure of management in 2011, offset by increased sales and marketing expenses in 2012 related to Spy brand products. Additionally, operating expenses in the quarter ended Sept. 30, 2012 included $700,000 related to certain restructuring actions which included estimated expenses associated with reducing the number of employees and changing the direct portion of European business to a distribution model. The restructuring activities together with reducing the level of anticipated spending for marketing programs are intended to lower future breakeven point on an operating basis.

In August 2012, the company increased borrowing capacity by increasing the maximum principal amount available to us under a credit facility with Costa Brava Partnership III, L.P. (“Costa Brava”) by $3.0 million (from $7.0 million to $10.0 million), thereby increasing the aggregate maximum principal amount under all credit facilities from Costa Brava from $14.0 million to $17.0 million (excluding accrued interest which is added to outstanding principal). We also extended the due dates of both of redit facilities with Costa Brava to be April 1, 2014. In Sept. 2012,  Spy borrowed $1.0 million under a convertible debt arrangement with Harlingwood (Alpha), LLC (“Harlingwood”). Costa Brava and Harlingwood are significant shareholders of the company's common stock.

The results of operations, liquidity and capital resources during and as of the quarter ended Sept. 30, 2012 and 2011, respectively, are more fully discussed in our Form 10-Q for the quarter ended Sept. 30, 2012.

Spy Inc. designs, market and distribute premium products for hardcore participants in action sports, motorsports, snow sports, cycling and multi-sports markets. Its principal products — sunglasses, goggles and prescription frames — are marketed under the Spy brand.