NexCen Brands, Inc., the parent of The Athlete's Foot, reported a big positive swing in earnings despite an 11% decline in total revenues in the third quarter ended September 30, 2009 to $10.8 million, compared to $12.2 million in the third quarter of 2008.
- Total operating expenses in the third quarter of 2009 decreased 78% to $9.1 million from $41.1 million in the third quarter of 2008. Operating income in the third quarter of 2009 increased to $1.7 million from an operating loss of $28.9 million in the third quarter of 2008. Loss from continuing operations in the third quarter of 2009 narrowed to $1.0 million, or ($0.01) per fully diluted share, from $32.3 million, or ($0.57) per fully diluted share, in the third quarter of 2008.
- The results for the third quarter of 2008 included $28.1 million of impairment charges related to intangible assets, $1.6 million in professional fees related to special investigations, and $0.3 million in restructuring costs. The results for the third quarter of 2009 included restructuring costs of $0.2 million. Excluding these special items, adjusted operating expenses for the third quarter of 2009 decreased 19%, or $2.1 million, to $8.9 million from adjusted operating expenses of $11.0 million for the third quarter of 2008. Adjusted operating income for the third quarter of 2009 increased 66%, or $0.8 million, to $1.9 million from adjusted operating income of $1.2 million for the third quarter of 2008. Adjusted loss from continuing operations narrowed to $0.8 million, or ($0.01) per fully diluted share, compared to an adjusted loss from continuing operations of $2.2 million, or ($0.04) per fully diluted share, in the third quarter of 2008. See Table 4 for details regarding these non-GAAP adjustments.
- Cash generated from operations was $0.6 million in the third quarter of 2009 compared to cash used in operations of $3.7 million in the third quarter of 2008.
- The company had total cash of $8.3 million as of September 30, 2009, compared to total cash of $8.0 million at June 30, 2009 and $8.3 million at March 31, 2009. The company also had restricted cash of $1.9 million at September 30, 2009, an increase of $1.2 million from $0.7 million at June 30, 2009 retaining $1.2 million of the funds paid to NexCen under long-term TAF licensing agreements for Australia and New Zealand that the Company entered into in August 2009. The company intends to invest approximately $1.2 million in new plant equipment by the end of the first quarter of 2010 to utilize excess capacity and leverage synergies in its manufacturing facility. The company expects these capital investments to begin generating incremental revenues in the second quarter of 2010.
- The company’s outstanding debt balance was $137.9 million at September 30, 2009, compared to $142.6 million at June 30, 2009 and $142.5 million at March 31, 2009. The company used $5.0 million of the net proceeds from the TAF licensing agreements to pay down a portion of its debt in August 2009.
- The company’s average effective interest rate for its credit facility was 6.5% in the third quarter of 2009, compared to 6.6% in the second quarter of 2009 and 6.8% in the first quarter of 2009. The company’s interest expense was $2.7 million in the third quarter of 2009, compared to $2.7 million in the second quarter of 2009 and $2.8 million in the first quarter of 2009.
- Total franchised locations were 1,755 stores at September 30, 2009 versus 1,857 stores at September 30, 2008. The net decrease of 102 stores, or 5.5%, reflects closures, initiated either by the franchisee or the company, of underperforming and non-compliant stores.
- The company executed franchise agreements for 65 new franchise units during the third quarter of 2009, versus franchise agreements for 20 new franchise units in the second quarter of 2009.
- Deferred revenue related to the pipeline for franchise stores to be opened pursuant to executed letters of intent and franchise agreements was approximately $2.9 million at September 30, 2009, an increase of approximately $0.3 million, or 12%, from approximately $2.6 million at June 30, 2009. Total deferred revenue related to vendor rebates was $0.3 million at September 30, 2009 and June 30, 2009.
Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, “We are very pleased to have recorded our third consecutive quarter of operating income and positive cash flow from operations since we began executing our strategic plan to turn around the business last year. While our third quarter top line continued to be impacted by the decline in mall traffic and retail spending, we further reduced our operating expenses to more than offset the decline in revenues. The positive results we have generated to date in 2009 are indicative of the substantial changes we have made to our business in the past year, the progress we have made in improving efficiencies across our organization, and our commitment to enhancing our franchise operations.”
Nine Months Operating Results
The operating results for the nine months ended September 30, 2009 are as follows:
- Total revenues for the nine months ended September 30, 2009 increased 1% to $34.6 million, compared to $34.3 million for the same period in 2008. The increase in revenues is primarily the result of full period revenues for Great American Cookies acquired on January 29, 2008. Total operating expenses for the nine months ended September 30, 2009 decreased 84% to $29.5 million from $179.2 million for the same period in 2008.
- Operating income for the nine months ended September 30, 2009 increased to $5.1 million from an operating loss of $144.8 million for the same period in 2008. Loss from continuing operations for the nine months ended September 30, 2009 narrowed to $2.5 million, or ($0.04) per fully diluted share, from $151.5 million, or ($2.67) per fully diluted share, for the same period in 2008.
- The results for the nine months ended September 30, 2008 included $137.9 million of impairment charges related to intangible assets, $3.6 million in professional fees related to special investigations, and $1.1 million in restructuring costs. The results for the nine months ended September 30, 2009 included $0.1 million in professional fees related to special investigations and restructuring costs of $0.2 million. Excluding these special items, adjusted operating expenses for the nine months ended September 30, 2009 decreased 20%, or $7.4 million, to $29.2 million from adjusted operating expenses of $36.6 million for the same period in 2008. Adjusted operating income for the nine months ended September 30, 2009 increased 336%, or $7.7 million, to $5.4 million, compared to an adjusted operating loss of $2.3 million for the same period in 2008. Adjusted loss from continuing operations for the nine months ended September 30, 2009 narrowed to $2.2 million, or ($0.04) per fully diluted share, from an adjusted loss from continuing operations of $11.9 million, or ($0.21) per fully diluted share, for the same period in 2008. See Table 4 for details regarding these non-GAAP adjustments.
- Cash flow from operations for the nine months ended September 30, 2009 improved by $10.7 million to $1.3 million of cash generated from operations, compared to cash used in operations of $9.4 million for the nine months ended September 30, 2008.
Mr. Hall concluded, “With the timely filing of our third quarter financial reports, we have reached another important milestone in our turnaround efforts. The timeliness of the filing, combined with our significantly improved financial results, demonstrates that we have achieved our immediate goals of stabilization of the company and reporting compliance. However, we recognize that for long-term growth, viability and shareholder value, we must address the burden of our debt and the company’s capital structure. These issues, as well as driving revenue growth, continue to be the focus of our corporate strategy in the coming months.”
Mr. Hall concluded, “With the timely filing of our third quarter financial reports, we have reached another important milestone in our turnaround efforts. The timeliness of the filing, combined with our significantly improved financial results, demonstrates that we have achieved our immediate goals of stabilization of the company and reporting compliance. However, we recognize that for long-term growth, viability and shareholder value, we must address the burden of our debt and the company’s capital structure. These issues, as well as driving revenue growth, continue to be the focus of our corporate strategy in the coming months.”
| NEXCEN BRANDS, INC. | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||||||||||
| (IN THOUSANDS, EXCEPT SHARE DATA) | ||||||||||||||||||||
| Three Months Ended
September 30, |
Nine Months Ended September 30, |
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| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Royalty revenues | $ | 5,875 | $ | 6,733 | $ | 17,861 | $ | 18,544 | ||||||||||||
| Factory revenues | 4,023 | 4,598 | 12,800 | 12,334 | ||||||||||||||||
| Franchise fee revenues | 638 | 454 | 3,034 | 2,434 | ||||||||||||||||
| Licensing and other revenues | 291 | 379 | 873 | 1,001 | ||||||||||||||||
| Total revenues | 10,827 | 12,164 | 34,568 | 34,313 | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||
| Cost of sales | (2,487 | ) | (3,093 | ) | (7,994 | ) | (8,389 | ) | ||||||||||||
| Selling, general and administrative expenses: | ||||||||||||||||||||
| Franchising | (2,997 | ) | (3,459 | ) | (9,558 | ) | (12,174 | ) | ||||||||||||
| Corporate | (1,646 | ) | ||||||||||||||||||
