The Walking Company Holdings, Inc. reported fourth quarter net sales increased 3.9% to $ 79.6 million from $76.6 million last year as full year sales grew 3.5% to $241.5 million from $233.3 million. Sales growth primarily due to the addition of 23 net new TWC stores (209 stores at year end vs. 186 last year) and a comparative TWC store sales increase of 6.7% in the 4th quarter and 1.8% for the year. Gross margin declined about 2% in the 4th quarter, primarily a result of The Walking Company discontinuing its small outlet business and liquidating the related inventory.


Andrew Feshbach, CEO, commenting on 4th quarter sales, said, “Despite the general decline in retail business in the 4th quarter, The Walking Company was able to achieve increased comparative store sales as a result of a few factors; strong sales of Ugg Australia boots and related products; strong increases in women's products overall, offset by declines in men's products; a perceived trend towards more versatile shoe styles sold by The Walking Company; and solid increases in the Company's “bricks and clicks” internet initiatives. Feshbach continued, “Comparative store sales in the first quarter of 2009 are estimated to be down mid to high single digits (reflecting the loss of a calendar day in February and the Easter holiday shift to April) with margins about the same as last year. We are noting the declines coming more significantly from the areas of the country most affected by the distressed housing market and the more luxury-oriented malls in general.”


DISPOSITION OF THE BIG DOGS OUTLET CHAIN:


In the fall of 2007, the company attempted to sell the Big Dog chain of outlet stores along with the related intellectual property assets. Due to the existing losses and the negative sales trends at the store level, the company was unsuccessful in selling Big Dogs. The company did receive at least one bid from a large liquidator to dispose of the chain, but believing the bid to be inadequate, set out to liquidate the business itself. On December 31, 2007, the Big Dogs outlet chain of stores numbered 131. As of today, the store chain has been reduced to 14. Over the past 15 months, over $20 million of inventory was turned into cash and was used to pay down debt, all but a few of the store leases have been resolved, and the employees were terminated with severance based on their tenure with the company. The results achieved by the company were said to be “substantially greater than the offer we received from the liquidator.” WALK continues to operate the remaining stores and Internet site and is evaluating a number of options to garner value from the brand.


DELISTING FROM NASDAQ:

Over the past few years, the publicly traded stock of The Walking Company Holding, Inc. (Symbol WALK) has become increasingly illiquid and poorly traded on the NASDAQ. At present, the company has just over 100 stockholders of record and a vast majority of the stock is held amongst a few individuals. The company intends to delist its stock from NASDAQ and deregister under the Securities Exchange Act, such that it will no longer file public statements with the SEC. Management believes it will save several hundred thousand dollars annually as a result of the delisting and consequent savings from other costly elements of reporting to the SEC and conforming to the Sarbanes Oxley rules. The company intends to have its stock continue to trade under the symbol WALK and while it will not trade on NASDAQ, it will likely trade at similar volumes to how it has over the last few years. Since we will no longer be a reporting company to the SEC, the company has reduced the size of its Board of Directors whose resignations were announced last week.


FINANCIAL RESTRUCTURING:

The liquidation of the Big Dog outlet chain while necessary and successful in generating cash to reduce debt, was costly in that WALK sustained losses during the period. Further losses were created as a result of certain payments to landlords, employees and write-offs of the remaining fixed assets. Consequently, management estimates that the combined business of the Walking Company and Big Dogs lost approximately $12 million before taxes in 2008. Given the current difficult environment for obtaining debt or equity financing, a weakened balance sheet and some “unfortunate and inaccurate rumors that were begun in our vendor community regarding our financial status (and resulting loss of some vendor credit),” the company saw no alternative but to act swiftly. WALK initiated the following measures to improve its operating results and strengthen its balance sheet:


 
1.   Every employee in the company has been reduced in compensation with
     the largest reductions in terms of actual amounts and percentages
     borne by the executive team.  Over 500 employees (largely on the Big
     Dog side) have been terminated and the company estimates that these
     cuts, among others, will reduce overhead costs by approximately 20%.

2.   The company has reached an agreement with its lender to increase its
     available lines of credit as a result of additional support provided
     by the controlling shareholders.

3.   The company has reached an agreement with its bond holders to allow
     PIK (pay in kind) interest for up to two years and the bond holders
     have agreed to reduce the actual indebtedness owed by approximately
     $3 million.

4.   The company has notified its landlords that it requires a reduction
     in rent due for the remainder of this year.  The unpaid rent will be
     returned to the landlords out of profits generated by the company in
     2009 or 2010.  While WALK has not received consents as yet from the
     landlords, it is hopeful that they will see that the plan requires a
     contribution from all involved with The Walking Company and it is in
     their interests as well as all others that WALK succeed in this
     endeavor.  It should be noted that some of the concessions listed
     above are in some form contingent upon landlord cooperation.

Management estimates the benefits of this financial restructuring to be approximately $10 million in annual cash savings and as much as $15 million in improved cash flow and credit. 

 

Commenting on the restructuring and recent corporate events, Feshbach reiterated, “We believe the measures we have recently implemented give us the financial flexibility and wherewithal to navigate this negative retail environment. We expect to be in discussions with our landlords over the next few weeks and are hopeful in obtaining their cooperation with our plan. It was our opinion that there was no practical way to obtain their consents prior to this announcement. More importantly, we believe that The Walking Company retail concept is strong for the long term. More and more people each day are entering the demographic most interested in the Walking Company where they need comfort shoes for their occupation or for their wellness. Despite the economic downturn, our store results have outpaced general retail in most cases and our competition in almost all cases. While 2009 and perhaps 2010 and beyond appear to be difficult years for retailers in general, we intend to find a way to come through this period and succeed in the long term.”