On April 3, 2014, Miami-based Perry Ellis International Inc. reported results for the fourth quarter (“fourth quarter of fiscal 2014”) and the fiscal year ended Feb. 1, 2014 (“fiscal 2014”).
Oscar Feldenkreis, president and chief operating officer of Perry Ellis International commented. “We were disappointed with the results of fiscal 2014. The year saw significant challenges, with unseasonal weather, consumer indifference to apparel, and declines in mall and outlet center traffic all negatively impacting our business,” he said. “We also experienced a fundamental shift in the business model favoring national brands over private and exclusive brands, thereby impacting revenues and near term profitability. On a positive note, there were many encouraging areas: our overall golf lifestyle apparel business, international, as well as Nike swim continued to be strong. Licensing income grew dramatically in the fourth quarter reflecting the strength of our core brands, and gross margins expanded by 170 bps in the fourth quarter reflecting the strength of these businesses coupled with our successful turnaround of the Rafaella sportswear collection.”
Fiscal 2014 Fourth Quarter Results
Total revenue for the fourth quarter of fiscal 2014 was $216 million, a 16 percent decrease compared to $258 million reported in the fourth quarter of fiscal 2013. Revenues were adversely impacted by both inclement weather countrywide, as well as a cautious consumer. As a result, the company saw a lack of replenishment orders across many of the business platforms.
During the fourth quarter of fiscal 2014, gross margins expanded to 34.3 percent as compared to 32.6 percent in the same period of the prior year, reflecting a lower level of promotions in our Rafaella and Perry Ellis collections businesses as well as higher contributions from the golf lifestyle, international and licensing businesses discussed above.
The company’s fourth quarter 2014 results included a $42.9 million or $1.94 per share non-cash write down of certain intangible assets, primarily trade names, goodwill and certain store leaseholds. These impairments were the product of our internal review of non-core brands and businesses.
As reported under GAAP, the fiscal 2014 fourth quarter loss was $28.2 million or $1.91 per diluted share compared to earnings of $4.4 million or $0.28 per diluted share in the fourth quarter of fiscal 2013. On an adjusted basis, the fiscal 2014 fourth quarter earnings per diluted share were $0.06 as compared to adjusted earnings per diluted share of $0.50 in the fourth quarter of fiscal 2013. Adjusted earnings per diluted share exclude certain items as outlined in Table 1 Reconciliation of GAAP diluted earnings per share to adjusted diluted earnings per share.
Fiscal 2014 Results
Fiscal 2014 revenues were $912 million as compared to $970 million reported in the prior year (“fiscal 2013”). Revenues increased across most of the golf lifestyle brands as well as in Nike swim, the company’s international businesses and in licensing income. These increases were offset by significant reductions in private label and proprietary branded sales as well as lower replenishment across many of the company’s businesses. While direct e-commerce sales saw a lift of 2.3 percent driven by a strong double digit lift in the second half of the year, our retail stores registered a decline in same store sales of 5.5 percent for the year.
On a GAAP basis, net loss for fiscal 2014 was $22.8 million, or $1.52 per share compared to GAAP net income of $14.8 million, or $0.97 per diluted share for fiscal 2013. Net loss for fiscal 2014 included $1.91 per share in non-cash impairment costs.
Adjusted earnings per diluted share for fiscal 2014 were $0.38 compared to adjusted earnings per diluted share of $1.45 in fiscal 2013. Adjusted earnings per diluted share exclude the costs mentioned in the attached Table 1 for both fiscal periods. (See reconciliation “Table 1” for a reconciliation of GAAP loss/earnings per diluted share to adjusted earnings per diluted share.)
The gross margin for fiscal 2014 was 33.2 percent compared to the gross margin of 32.7 percent in fiscal 2013. Gross margin was positively impacted by a reduction in promotional activity in our sportswear collection businesses, a more favorable revenue mix between branded and private label revenues, as well as a stronger contribution from the company’s higher margin international platform and licensing revenues. These margin improvements were partially offset by higher liquidation sales in the fashion swim business and a reduced mix of higher margin replenishment sales.
Selling, general and administrative expenses totaled $273 million for fiscal 2014 as compared to $264 million in fiscal 2013. The year-over-year increase reflects increased marketing and advertising expense, as well as costs associated with the strategic consolidation of the company’s New York office facilities. In addition, ten new store openings added incremental store expenses.
Earnings before interest, taxes, depreciation, amortization and impairments, as adjusted (“adjusted EBITDA”) for fiscal 2014 totaled $34.8 million, or 3.8 percent of total revenue. This compares to adjusted EBITDA of $61.4 million for fiscal 2013. (See attached reconciliation “Table 2” for a reconciliation of net loss/income to adjusted EBITDA.)
Balance Sheet Update
During fiscal 2013, we commenced divesting of trade names and businesses that were small revenue and low profit contributors. During fiscal 2015, we plan to focus on our brands and businesses that provide us the greatest profit enhancement while de-emphasizing brands and businesses that we do not consider core to the company.
Our focus will be on our core businesses and brands: our strong branded golf lifestyle portfolio, Original Penguin, Perry Ellis and Rafaella collections as well as Laundry and Savane.
The company has also embarked on a strategic overhead rationalization program to review its processes and systems and to streamline its supply chain to realize greater efficiencies.
George Feldenkreis, chairman and chief executive officer of Perry Ellis International stated, “Our liquidity and leverage profile remains strong with net debt to capitalization of 29.2 percent and ample availability under our credit facility. Cash and investments totaled $42.4 million at the end of fiscal 2014 leaving us well positioned to execute our strategies to position Perry Ellis for improved long-term profitability and growth. We remain committed to setting a course for Perry Ellis International that increases value for our shareholders.”
For the full release, visit Perry Ellis’ investor site.
