Vans, Inc. announced net sales for the third quarter of fiscal 2003 ended March 1, 2003 were $82.1 million compared to $82.2 million in the third quarter of last year. The Company reported a net loss of $9.2 million, or $0.51 per diluted share for the quarter, versus net income of $483,000, or $0.03 per diluted share in the same period a year ago. Excluding a non-cash impairment charge of $15.3
million, pre-tax, and a concession to its Japanese licensee of $375,000 (and the related tax benefit of these charges), third quarter earnings per diluted share would have been $0.03, which was flat with the third quarter last year. Net sales for the first nine months of fiscal 2003 were $267.3 million compared to net sales of $268.5 million for the same period a year ago. The Company’s net loss for the
nine months was $7.5 million, or $0.41 per diluted share, versus net income of $12.3 million, or $0.67 per diluted share in the corresponding period of fiscal 2002. Excluding the $15.3 million third quarter pre-tax charge and the $375,000 concession (and the tax benefit of these charges), net income for the nine months was $2.2 million, or $0.12 per diluted share.
In the third quarter, the Company incurred a non-cash impairment charge related to its skateparks and certain of its retail stores of approximately $15.3 million before taxes ($9.4 million after-tax), or $0.53 per diluted share. Of this amount, $7.7 million, or $0.43 per diluted share, related to the write-down of assets for 10 skateparks,
and $1.7 million, or $0.10 per diluted share, related to the
write-down of assets for 17 retail stores. The Company also conceded and wrote-off a $375,000 receivable from its licensee for Japan related to its bag and backpack business in connection with the execution of new five-year license agreements for footwear and apparel covering Japan, South Korea, Hong Kong and Taiwan.
“Excluding the non-cash impairment charge and the concession, our results for the third quarter were generally even with last year,” said Gary H. Schoenfeld, President and Chief Executive Officer. “Some
bright spots during the quarter included continued strength in Europe, growth in apparel, higher gross margins and further reductions in our inventory. Although overall trends in our business are still inconsistent, we continue to believe we are taking the necessary steps to get back on track for fiscal 2004 and beyond.”
Commenting on the charge, Mr. Schoenfeld stated, “For the first three years, our skateparks generally performed at or above 20% EBITDA margins, in addition to helping solidify the global leadership position of our brand in the action sports market. However, the number of skateparks in the U.S. is estimated to have increased nearly ten-fold since the opening of our first park in 1998, with over 1,000
parks built just in the 18 month period from January 2001 to June 2002, according to the Skate Park Association of the USA. This substantial increase in the competitive landscape, particularly from free parks, has negatively impacted our skatepark business leading to the write-down of these assets. We recently hired DJM/ChainLinks to
lead negotiations with landlords for either rent reductions or lease terminations for the parks, and we anticipate that we will incur subsequent cash charges upon the resolution of these discussions.”
Mr. Schoenfeld continued, “During the quarter we successfully concluded a long negotiation resulting in new five year licensing agreements for footwear and apparel with our Japanese licensee, ABC-Mart Inc., which we believe has the potential to generate in excess of $30 million in royalties for Vans over the next five years. As part of the negotiation, we agreed to suspend the bag and backpack license with ABC which led to the $375,000 concession we
incurred in the third quarter.”
Total U.S. sales for the third quarter, including sales through Vans U.S. retail stores, were $52.2 million, versus $55.0 million for the same period a year ago. Sales through the Company’s U.S. retail stores decreased 2.2% to $29.7 million in the third quarter of fiscal 2003, from $30.3 million in the same period a year ago. Comparable
store sales for the third quarter, including sales through European stores, declined 6.6% versus the same period last year. U.S. wholesale sales in the third quarter decreased 8.6% to $22.6 million, versus $24.7 million a year ago. Total international sales were $29.8 million, up approximately 10.0% from $27.1 million a year ago.
“We are encouraged by the increases we have experienced in our apparel and women’s businesses as new merchandise has hit our stores over the past 90 days,” Mr. Schoenfeld said. “Apparel comps were up approximately 20% for the quarter in our full price stores, our apparel joint venture with Pac Sun was up even more, and a current test of women’s footwear in 14 of our stores is also generating very
strong double-digit gains. Internationally our business through our European subsidiaries was up over 20%, but was offset by declines in other Asian and American markets.”
Gross margins for the quarter increased 170 basis points to 47.6% vs. 45.9% a year ago primarily due to improved margins in Europe. Operating expenses for the quarter were $54.1 million. Excluding the pre-tax impairment charge of $15.3 million and the $375,000 concession, operating expenses increased by 3.4% from $37.1 million to $38.3 million. Inventory decreased $4.9 million to $50.1 million from $55.0 million year-over-year and the Company’s balance sheet remains strong with $53.2 million in cash and marketable securities.
The Company stated that the recently commenced war with Iraq makes forecasting the fourth quarter of fiscal 2003 more difficult. Assuming only a modest disruption in the marketplace, its best estimates are sales in the range of $57 to $60 million versus $63.8 million last year and a diluted loss per share, excluding any charges the Company
may take in relation to the skateparks, comparable to the ($0.24) loss it incurred in the fourth quarter of fiscal 2002, excluding the after-tax impairment charges and other expenses of $10.5 million or, $0.59 per share, it took in that quarter.
Mr. Schoenfeld concluded, “As we have previously stated, fiscal 2003 is a turnaround year for Vans. We are focused on improving our product, maximizing our retail stores and further leveraging the lifestyle status of our brand while simultaneously controlling our inventory and seeking out ways to further reduce costs. Over the past several years, we have created a strong connection between our brand and the youth market, and while we still face challenges in this
uncertain environment, we are seeing some signs of encouragement as we look ahead to next year.”
The Company also disclosed that Arthur I. Carver, Senior Vice President of Global Operations, and Robert L. Nagel, Senior Vice President of Sales and Apparel, are leaving the Company as of May 31, 2003. In addition, Kevin D. Bailey has been promoted to run Vans retail division and Steven A. Munn has been promoted to Vice President of National Sales.
Commenting on the personnel changes, Mr. Schoenfeld said, “Both Art and Bob have done a good job in their respective areas and together we agreed that it was the right time to reorganize as a way to further reduce our fixed costs. Kevin Bailey has made a significant impact in his role as Vice President – Retail Operations over the past
year, and along with Howard Kreitzman, our Vice President and General Merchandising Manager, we believe we have the experience and leadership necessary to re-establish growth and profitability in our retail business. Steve Munn has been in charge of national sales operations for the past year, as well as being responsible for sales to many of our largest accounts, and has exhibited an excellent understanding of our customers needs, both operationally and from a product standpoint.”
Vans, Inc.
Unaudited Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Three Months Nine Months
Ended Ended
------------------- -------------------
Mar 1, Mar 2, Mar 1, Mar 2,
2003 2002 2003 2002
--------- --------- --------- ---------
Retail sales $ 29,666 $ 30,328 $ 88,645 $ 87,064
National sales 22,566 24,686 97,378 103,933
International sales 29,832 27,137 81,280 77,547
--------- --------- --------- ---------
Net sales 82,064 82,151 267,303 268,544
Cost of sales 43,028 44,414 147,118 142,208
--------- --------- --------- ---------
Gross profit 39,036 37,737 120,185 126,336
Gross profit percentage 47.6% 45.9% 45.0% 47.0%
Operating expenses
Retail 17,371 15,670 52,066 44,232
Marketing, advertising and
promotion 6,317 8,284 22,796 26,640
Selling,distribution and
administrative 14,825 13,079 40,714 36,965
Impairment charges 15,338 - 15,338 -
Amortization of intangible
assets 203 62 568 152
--------- --------- --------- ---------
Total operating expenses 54,054 37,095 131,482 107,989
Operating (loss) profit (15,018) 642 (11,297) 18,347
Operating (loss) profit
percentage -18.3% 0.8% -4.2% 6.8%
Other (income) expense, net (a) 775 159 1,035 251
Interest (income) expense, net (254) (234) (679) (944)
--------- --------- --------- ---------
Other (income) expense, net 521 (75) 356 (693)
Earnings (loss) before taxes (15,539) 717 (11,653) 19,040
Income tax (benefit) expense (5,965) 215 (4,799) 5,712
Minority interest (368) 19 597 990
--------- --------- --------- ---------
Net income (loss) $ (9,206) $ 483 $ (7,451) $ 12,338
