OREANDA-NEWS. Perry Ellis International, Inc. (NASDAQ:PERY) today reported second quarter results for the period ended July 30, 2016 (“second quarter of fiscal 2017”).

Key Fiscal Second Quarter 2017 Financial and Operational Highlights:

  • Adjusted diluted EPS totaled $0.15, above guidance and compared to $0.31 per diluted share in comparable period of prior year.
  • Diluted GAAP loss per share of $0.24 as compared to $0.09 in comparable period of prior year.
  • Gross margin expanded to 36.6% as compared to 35.6% in prior year. 
  • Disciplined inventory management resulted in a $20 million decline in inventory at quarter end to $134 million, as compared to $154 million in comparable period of prior year.
  • Maintaining fiscal 2017 adjusted EPS guidance in a range of $1.95 to $2.00.
  • Updated fiscal 2017 revenue guidance to a range of $885-$890 million reflecting changes in currency translation and modified economic growth post –Brexit
  • Planning closure of 15 underperforming retail doors in next 18 months with heightened focus on ecommerce and improving retail performance.

“We are pleased to report revenue and adjusted earnings per diluted share above guidance driven by the strength of our authentic brands, our commitment to innovation and product excellence combined with the continued success of our five point growth and profitability plan.   The quarter included a 4.1% sales increase in our core global businesses and solid expansion in gross margin.  We believe our first half performance demonstrates that our focused strategy is providing us with the right formula to drive our business forward in a challenging retail environment.  We remain confident in our highly desirable portfolio of lifestyle brands – Perry Ellis, Original Penguin and Golf Lifestyle.  This combined with the continued traction of our strategy and our strong balance sheet positions us well to deliver on our objectives for fiscal 2017 to drive sustained long term growth and increased value for our shareholders,” said Oscar Feldenkreis, Chief Executive Officer of Perry Ellis International.

Fiscal 2017 Second Quarter Results

Total revenue was $202 million, a 5% decrease compared to $213 million in the second quarter of fiscal 2016.   Increased sales across the Company’s core global brands were offset by 3% planned business exits as well as 2% reductions in special market revenues.   The Company also experienced negative currency headwinds of approximately 1.4% on total revenues. 

Gross margin expanded 100 basis points to 36.6%, from gross margin of 35.6%  and (90 basis points from adjusted gross margin of 35.7%) in the 2016 second quarter, reflecting stronger margin in our Men’s Sportswear, Golf Lifestyle and Nike businesses as well as expansion in direct to consumer margins, and cost savings realized through the ongoing infrastructure review.   (Adjusted gross margin is outlined in Table 2, Reconciliation of gross profit to adjusted gross profit and adjusted gross margin.)

Selling, general and administrative expenses totaled $72.7 million, as compared to $68.3 million in the comparable period of the prior year.   Excluding costs associated with streamlining and consolidation of operations, expenses were $66.8 million for the second quarter of fiscal 2017 as compared to $67.1 million in the comparable quarter of the prior year.

As reported under GAAP, the fiscal 2017 second quarter loss was $3.6 million, or $0.24 per diluted share, as compared to a loss of $1.3 million, or $0.09 per diluted share, in the second quarter of fiscal 2016.  On an adjusted basis, fiscal 2017 second quarter earnings per diluted share were $0.15 as compared to adjusted earnings per diluted share of $0.31 in the second quarter of fiscal 2016.  (Adjusted earnings per diluted share exclude certain items as outlined in Table 1, Reconciliation of GAAP net income (loss) per diluted share to adjusted net income per diluted share.)

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the second quarter of fiscal 2017 totaled $7.1 million as compared to $8.9 million in the comparable period of the prior year.  Adjusted EBITDA margin was 3.5% as compared to 4.2% in the comparable period of the prior year.  EBITDA totaled $1.2 million as compared to $7.7 million for the comparable period of the prior year. (Adjusted EBITDA excludes certain items as outlined in Table 3, Reconciliation of Net Income (Loss) to EBITDA and adjusted EBITDA.)

Balance Sheet

At the close of the quarter, the Company’s financial position remained strong.  Inventories totaled $134 million, as compared to $154 million at the end of the comparable period in the prior year, and compared to $183 million at the fiscal 2016 year end, with continued emphasis on driving turn.   

Update on Strategic Priorities for Fiscal 2017 to Enhance Profitability

The Company continues to focus on successfully implementing its growth and profitability plan. 

George Feldenkreis, Executive Chairman, Perry Ellis International, commented, “As we look ahead to the remainder of the year, we are maintaining our guidance for adjusted earnings per share in a range of $1.95 to $2.00 for fiscal 2017.  While we feel confident with our business, we do believe that the strength of the U.S. dollar and the changing consumer spending patterns for international tourists in the U.S., along with the volatility in the global environment,  remain headwinds.  We believe that the sound execution of our business strategies and investment in our world-class brands, together with our strong balance sheet will position us to deliver strong results in fiscal 2017.” 

The Company continues to execute on the focused strategy roadmap articulated during the year. This includes:

  • Continuing to optimize competitive positioning as evidenced by growth achieved across the Company’s global growth brands led by Perry Ellis, Original Penguin, and Golf Lifestyle. Collectively, these businesses expanded 4.1% during the second quarter.
     
  • Evolving materials and performance qualities of the Company’s products across its global brands to increase the consumer appreciation and support.  Invested in global shops noting strong payback on financial metrics.
     
  • Accelerating international expansion through direct investment in the North America and Europe as well as strategic partnerships with licensees and other partners.  International represented 13.6% of total revenues compared to 13.2% in the comparable period of the prior year. Specifically, the Company’s introductions of Ben Hogan in the United Kingdom, Nike Swim across Europe and Latin America, and Perry Ellis America in Europe further establish our growth platform for the international markets.
     
  • Continued focus on controlling costs and expenses through process enhancements, inventory management and sourcing improvements. During the second quarter of fiscal 2017, the Company executed $2.0 million in cost reductions that reduced both cost of goods and SG&A during the year.  The Company plans to close 15 of its retail store locations that are underperforming over the next 18 months. These retail closures are expected to reduce revenues in the current year by $2.8 million and next year by $8.3 million with an improvement in annual operating income of approximately $1.3 million.

About Perry Ellis International

Perry Ellis International, Inc. is a leading designer, distributor and licensor of a broad line of high quality men's and women's apparel, accessories and fragrances. The Company's collection of dress and casual shirts, golf sportswear, sweaters, dress pants, casual pants and shorts, jeans wear, active wear, dresses and men's and women's swimwear is available through all major levels of retail distribution. The Company, through its wholly owned subsidiaries, owns a portfolio of nationally and internationally recognized brands, including: Perry Ellis®, Original Penguin® by Munsingwear®, Laundry by Shelli Segal®, Rafaella®, Cubavera®, Ben Hogan®, Savane®, Grand Slam®, John Henry®,  Manhattan®, Axist®, Jantzen® and Farah®.  The Company enhances its roster of brands by licensing trademarks from third parties, including: Nike® and Jag® for swimwear, and Callaway®, PGA TOUR®, and Jack Nicklaus® for golf apparel. 

 

  PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES  
SELECTED FINANCIAL DATA (UNAUDITED)  
(amounts in 000's, except per share information)  
INCOME STATEMENT DATA:            
    Three Months Ended    Six Months Ended   
    July 30, 2016   August 1, 2015   July 30, 2016   August 1, 2015  
                   
Revenues                  
Net sales   $ 193,341     $ 204,638     $ 444,216     $ 462,895    
Royalty income     8,312       8,661       18,731       16,818    
Total revenues     201,653       213,299       462,947       479,713    
Cost of sales     127,822       137,357       294,032       313,671    
Gross profit     73,831       75,942       168,915       166,042    
Operating expenses                  
Selling, general and administrative expenses     72,654       68,254       142,588       137,862    
Depreciation and amortization     3,716       3,446       7,183       6,768    
Total operating expenses     76,370       71,700       149,771       144,630    
Loss on sale of long-lived assets     -       -       -       (697 )  
Operating (loss) income     (2,539 )     4,242       19,144       20,715    
Costs on early extinguishment of debt     -       5,121       -       5,121    
Interest expense     1,889       1,943       3,914       5,570    
                   
Net (loss) income before income taxes     (4,428 )     (2,822 )     15,230       10,024    
Income tax (benefit) provision     (863 )     (1,541 )     4,545       1,894    
Net (loss) income   $ (3,565 )   $ (1,281 )   $ 10,685     $ 8,130    
                   
Net (loss) income, per share                  
Basic   $ (0.24 )   $ (0.09 )   $ 0.72     $ 0.55    
Diluted   $ (0.24 )   $ (0.09 )   $ 0.71     $ 0.53    
                   
Weighted average number of shares outstanding                  
Basic     14,953       15,048       14,882       14,849    
Diluted     14,953       15,048       15,139       15,283    
               
  PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES  
SELECTED FINANCIAL DATA (UNAUDITED)  
(amounts in 000's)  
   
 BALANCE SHEET DATA:  
   
  As of  
  July 30, 2016   January 30, 2016  
         
Assets        
Current assets:        
Cash and cash equivalents $ 27,882     $ 31,902    
Accounts receivable, net   120,639       132,066    
Inventories   134,414       182,750    
Investments   13,633       9,782    
Other current assets   8,347       10,279    
Total current assets   304,915       366,779    
         
Property and equipment, net   63,796       63,908    
Intangible assets, net   187,485       187,919    
Deferred income taxes   392       442    
Other assets   2,757       2,927    
         
Total assets $ 559,345     $ 621,975    
                 
Liabilities and stockholders' equity                
Current liabilities:                
Accounts payable $ 55,740     $ 103,684    
Accrued expenses and other liabilities   22,879       26,497    
Accrued interest payable   1,487       1,521    
Income taxes payable   459       -    
Deferred pension obligation   12,206       12,107    
Unearned revenues   3,857       4,213    
Total current liabilities   96,628       148,022    
                 
                 
Long term liabilities:                
Senior subordinated notes payable, net   49,600       49,528    
Senior credit facility   33,865       61,758    
Real estate mortgages   20,873       21,318    
Unearned revenues and other long-term liabilities   54,471       49,868    
Total long-term liabilities   158,809       182,472    
                 
Total liabilities   255,437       330,494    
                 
Equity                
                 
Total equity   303,908       291,481    
                 
Total liabilities and equity $ 559,345     $ 621,975    
                 
  PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES  
Table 1  
Reconciliation of  net (loss) income  and (loss) income per diluted share to adjusted net income and adjusted net income per diluted share  
(UNAUDITED)  
(amounts in 000's, except per share information)  
               
        Three Months Ended    Six Months Ended   
        July 30, 2016   August 1, 2015   July 30, 2016   August 1, 2015  
Net (loss) income     $ (3,565 )   $ (1,281 )   $ 10,685     $ 8,130    
Adjustments:                    
Costs on exited brands       -       -       869       2,138    
Costs of streamlining and consolidation of operations, legal settlement and other strategic initiatives       5,897       1,233       5,951       3,290    
Costs on early extinguishment of debt       -       5,121       -       5,121    
Loss on sale of long-lived assets       -       -       -       697    
Tax expense       -       (302 )     -       472    
Net income, as adjusted     $ 2,332     $ 4,771     $ 17,505     $ 19,848    
       
                       
        Three Months Ended    Six Months Ended   
        July 30, 2016   August 1, 2015   July 30, 2016   August 1, 2015  
Net (loss) income per share, diluted     $ (0.24 )   $ (0.09 )   $ 0.71     $ 0.53    
                       
Net per share costs on exited brands       -       -       0.06       0.14    
Net per share costs of streamlining and consolidation of operations, legal settlement and other strategic initiatives     0.39       0.08       0.39       0.22    
Net per share costs on early extinguishment of debt       -       0.33       -       0.33    
Net per share loss on sale of long-lived assets       -       (0.01 )     -       0.08    
Adjusted net income per share, diluted     $ 0.15     $ 0.31     $ 1.16     $ 1.30    
               
"Adjusted net income per share, diluted" consists of "net (loss) income per share, diluted" adjusted for the impact of  the costs on exited brands,  costs of streamlining and consolidation of operations, legal settlement,  and other strategic initiatives, cost on early extinguishment of debt and loss on sale of long-lived assets. These costs are not  indicative of our core operations and thus to get a more comparable result with the operating performance of the apparel industry, they have been removed, net of taxes, from the calculation.  
         
  PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
Table 2
RECONCILIATION OF GROSS PROFIT TO  ADJUSTED GROSS PROFIT AND ADJUSTED GROSS MARGIN(1)
(UNAUDITED)
(amounts in 000's)
       
       
       
      Three Months Ended    Six Months Ended 
      July 30, 2016   August 1, 2015   July 30, 2016   August 1, 2015
                   
Gross profit   $ 73,831     $ 75,942     $ 168,915     $ 166,042  
                   
Costs on exited brands     -       -       869       2,138  
Costs of streamlining and consolidation of operations, and other strategic initiatives     -       146       -       889  
                   
Gross profit, as adjusted   $ 73,831     $ 76,088     $ 169,784     $ 169,069  
                   
                   
Total revenues   $ 201,653     $ 213,299     $ 462,947     $ 479,713  
                   
Gross margin, as adjusted     36.6 %     35.7 %     36.7 %     35.2 %
       
(1) Adjusted gross profit consists of gross profit adjusted for  costs on exited brands and costs of streamlining and consolidation of operations, and other strategic initiatives.  We believe these costs are not  indicative of our core operations and thus we have removed them to provide investors and analysts with a more comparable result when comparing our operating performance to that of  the apparel industry.