Phoenix Footwear Group, Inc. reported net Q1 sales from continuing operations increased 3% to $22.0 million compared to $21.3 million a year earlier. The net sales growth included strong performances of Tommy Bahama and SoftWalk brands, which increased 34% and 10%, respectively, year-over-year. The company also generated sales growth in its H.S. Trask and Trotters product lines. Sales of Chambers decreased 4% for the quarter reflecting the continued challenging retail environment at large.
On a sequential basis, gross margin expanded 1000 basis points to 36%, compared to 26% for the quarter ended December 29, 2007. For the first quarter of fiscal 2007 gross margin from continuing operations was 39%. Operating expenses decreased to $7.8 million, or 35% of net sales, compared to $9.1 million, or 43% of net sales, for the first quarter of fiscal 2007. The decrease in operating expenses is a result of expense controls during the quarter, as well as expense reimbursements received by the company under the Transition Services Agreement entered into concurrently with its divestiture of Altama Delta Corporation.
The company reported operating income of $101,000 and EBITDA of $435,000, compared to an operating loss from continuing operations of
$772,000 and negative EBITDA of $235,000 a year ago. Net loss was $280,000, or 3 cents a share, compared to a net loss of $980,000 from continuing operations for the first quarter of fiscal 2007.
“We are very pleased with our first quarter performance, particularly in light of the present challenges in retail,” commented Cathy Taylor, Phoenix Footwear's Chief Executive Officer. “Reflecting our improvement in product design, merchandising and execution, four out of our five brands posted increases in sales. The strong momentum was led by Tommy Bahama, which grew at a high double-digit rate for the third consecutive quarter. Our improved sourcing and procurement capabilities translated into expanded gross margins, and we expect further improvements in gross margins by the end of the fiscal year. Additionally, our continued focus on closely controlling costs allowed us to return to operating profitability. We have repaid the majority of our bank debt and now move forward with a strong capital base.”
Taylor continued, “In spite of a difficult economic environment, we remain optimistic about our future. We have exciting developments underway, including the expansion of our Tommy Bahama product offering to take advantage of their RELAX label, a new product line of H.S. Trask and a new extension of our Trotters label, “The Z Collection.” Based on the initial customer response, we believe each of these brands is positioned for continued improvements.
“We are starting the year with what we believe to be a strong portfolio of brands, a solid and vastly improved capital structure, better operating performance and a further strengthened management team. We are very proud of our accomplishments to date and are committed to building value for our shareholders in 2008 and beyond.”
Balance Sheet and Liquidity
As of March 29, 2008, the Company had $18.4 million in working capital, an increase of $26.6 million from one year ago. As of March 29, 2008, tangible net worth totaled $19.7 million and the Company's bank debt, net of cash, totaled $8.9 million.
During the first quarter, the Company continued its negotiations toward refinancing its revolving credit facility with Wells Fargo pursuant to a term sheet which provides for interest at LIBOR plus 2.4%, or prime minus 0.25% for an effective interest rate of 4.75% based upon today's rates. The Company is working toward signing a definitive agreement for the facility. The facility is expected to be in place no later than mid-2008.
Financial Guidance
Taylor concluded, “While the second quarter will be our seasonally weakest quarter and will not produce a profit, we are again expecting to see growth in the majority of our brands and gross margins at a level which is comparable to our first quarter results. We expect Chambers to return to positive growth in the second half of the year.”
For fiscal year 2008, the company reiterates its previously issued guidance of net sales of between $95 million to $100 million and income from continuing operations of between $2.0 million to $2.5 million.
