Differential Brands Group Inc., which owns the Swims Scandinavian watersports footwear brand, reported consolidated net sales were $41.2 million in its third quarter ended September 30.
The loss in the period came to 22 cents a share, with adjusted EBITDA reaching $1.8 million.
“We were pleased with the progress we made in the strategic initiatives associated with each of our brands. At Robert Graham, we saw strong sell-through of our new fashion basics assortment in our retail stores,” said CEO Michael Buckley. “We continue to evolve our product offering to deliver distinctive fashion to our core customers and to expand our reach to a broader consumer base. At Hudson, we remain focused on building our Consumer Direct business as we bring our e-commerce business in-house and plan for the opening of our first retail location in the Spring of 2017. We believe that by building our consumer direct presence, we can better engage our existing customers as well as broaden our demographic reach.”
He continued, “At Swims, we remain on track with the integration process and expect to grow our business in the North American and international markets. Overall, we continue to make meaningful progress in positioning our brands for long-term, profitable growth. Looking ahead, we remain focused on growing our brands organically and acquiring new premium brands that are accretive and complementary to our portfolio.”
For the three months ended September 30, 2016, the financial results reflect the consolidated operations of the company’s three brands: Robert Graham, Hudson and Swims, the latter of which was acquired in July 2016. For the three months ended September 30, 2015, the financial results solely reflect the operations of the company’s brand Robert Graham, due to the merger that was completed on January 28, 2016.
For the third quarter of fiscal 2016, overall net sales were $41.2 million compared to $17.6 million in the same prior-year period. The increase in net sales for the third quarter of fiscal 2016 was primarily driven by the inclusion of $19.5 million from the addition of sales from Hudson and $3.5 million from the addition of sales from Swims. Growth in the Robert Graham business was driven by the opening of three new retail stores since the prior-year third quarter.
Overall gross profit for the third quarter of fiscal 2016 increased to $20.3 million from $11.0 million in the same prior-year period. This increase in gross profit was primarily attributable to the addition of $10.3 million in gross profit from the Hudson brand and $1.6 million in gross profit from the Swims brand. This was partially offset by a $1.3 million non-cash inventory expense related to the Swims inventory acquired and stepped up to fair value that was sold in the third quarter of fiscal 2016 and a markdown reserve of $650,000, which represents the net realizable value of certain aged Robert Graham inventory.
Overall gross margin in the third quarter of fiscal 2016 was 49.4 percent compared to 62.3 percent in the third quarter of fiscal 2015, primarily as a result of the addition of the Hudson and Swims wholesale businesses, whose products generate lower gross margins than Robert Graham. The decrease in gross margin was also the result of increased markdowns for Robert Graham inventory associated with slower-selling styles from the previous season.
Operating expense in the third quarter of fiscal 2016 was $22.7 million compared to $10.7 million in the same prior-year period. Operating expense includes approximately $915,000 in transaction expenses associated with the merger with Robert Graham and the acquisition of Swims. Excluding these expenses, operating expense was $21.8 million for the third quarter of fiscal 2016.
Adjusted EBITDA for the third quarter of fiscal 2016 was $1.8 million compared to $1.2 million in the same prior-year period.
Operating loss from continuing operations was $2.4 million during the third quarter of fiscal 2016 compared to operating income from continuing operations of $248,000 in the same prior-year period. Operating loss, excluding transaction and expenses associated with the merger with Robert Graham and the acquisition of Swims, and the non-cash inventory expense related to the Swims inventory, as noted above, was $189,000 for the third quarter of 2016.
Net loss was $2.8 million, or a loss per share of 22 cents, for the third quarter of fiscal 2016. This compares to net income of $36,000, or net earnings per share of less than 1 cent, for the third quarter of fiscal 2015. Net loss, excluding transaction and merger related expenses associated with the merger with Robert Graham and the acquisition of Swims and the aforementioned non-cash inventory expense related to the Swims inventory, was $1.5 million, or a loss per share of 11 cents, for the third quarter of fiscal 2016.
